Some Beach, Part 4 - Eight Steps That Could Upend Texas Gulf Coast Natural Gas Markets

Within the next year, the Permian Highway and Whistler natural gas pipelines will add 4.0 Bcf/d of incremental capacity from the Permian Basin to the Gulf Coast, with gas supplies on those pipes primarily targeting LNG exports. But in the years since these pipeline projects were initially envisioned, market conditions have been radically transformed by consequences of the COVID era, on both the supply and demand sides of the equation. The outlook for supply growth is lower, while the dependability of LNG exports has been thrown into question following massive cargo cancellations this summer. In RBN’s special-edition multi-client market study, titled Some Beach, we break down the consequences of these developments into eight distinct steps that demonstrate how Texas gas markets are likely to evolve as flows and basis respond. Today’s blog summarizes those conclusions.

Our eight steps assess prospective changes on both the supply and demand sides of the Texas natural gas market. On the supply side, the outlook for Permian natural gas production growth is down considerably from the pre-COVID era, due primarily to lower crude oil prices resulting in cutbacks in drilling and completions by Permian producers. Instead of providing crucial pipeline takeaway capacity to handle rapidly growing Permian gas supply, the new pipelines will create a pipeline capacity surplus, which will disrupt regional gas flows and prices.

There has also been a dramatic shift in the demand markets targeted by these pipelines. In the pre-COVID world, it was generally assumed that increasing LNG export capacity along the Gulf Coast would be highly utilized on a consistent basis, with U.S. LNG exports enjoying profitable economics due to the price differential between U.S. and global gas markets. During the summer of 2020, however, this assumption was dashed, as COVID-related demand curtailments in Asia and Europe crushed prices and undermined export economics, resulting in scores of U.S. LNG cargo cancellations. 

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