Some Beach, Part 3 - LNG Demand Will Flip Natural Gas Flows and Basis Across the Texas-Louisiana Border

The Permian is set to send increasing volumes of natural gas to the Texas Gulf Coast next year, but it is unlikely to be the flood that was once expected. This year’s decline in oil prices has slashed budgets for West Texas producers and rig counts show no sign of a big rebound anytime soon. As a result, growth of oil and associated gas from the Permian will be tepid at best over the next few years, which is a major change from when oil prices hovered north of $50/bbl. Despite the moderation in gas volumes out of the basin, infrastructure changes in 2021 are likely to roil Permian gas markets and have important knock-on impacts for adjacent regions and end-users that depend on West Texas supply. With much less incremental gas from the Permian, there are likely to be significant shifts in gas flows, particularly across the Texas-Louisiana border, to help meet the big increases anticipated for LNG exports. Today, we continue a series that highlights findings from RBN’s new, Special Edition Multi-Client Market Study.

In Part 1 and Part 2 of this series, we looked at our current Mid Case production forecast [based on $45/bbl West Texas Intermediate (WTI) and $2.50/MMBtu Henry Hub prices — both flat for 5 years], which shows Permian natural gas production growing slowly and not topping 14 Bcf/d until 2025. That’s much later than our High Case production forecast [based on $55/bbl WTI and $3.00/MMBtu Henry], which predicts Permian gas hitting that level by 2022. It’s fair to say that few in the market are now expecting the High Case and all participants are trying to decide just what the new outlooks mean for gas markets from the Permian to the Gulf Coast. In Part 1, we showed that the lower production scenario has the very obvious impact of tightening Waha basis over the next few years, as new pipeline capacity planned for 2021 more than offsets the expected growth through 2025.

In Part 2, we expanded past the Waha basis impact to evaluate where the new pipelines would source gas, detailing how current outflows from the Permian moving north would not only fall, but could actually flip direction and flow from north to south. We also looked at flows to the Texas Gulf Coast, which will increase but leave many legacy pipelines moving east from the Permian far from full as the new projects steal share from the incumbents. Only in the High Case would there be enough production to fill all those pipelines within our five-year outlook. A fourth new large-diameter pipeline from the Permian to the coast, thought to be a sure thing at $50/bbl oil, is no longer justified in the Mid Case. Today, we turn our attention to the implications of the new flows forecast for the Katy/Houston Ship Channel market, as well as how flows between Texas and Louisiana may evolve, and how that would impact the South Louisiana supply and demand balance (which we’ve been covering separately in our Down by the Water series).

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