Down Louisiana Way - Emerging Bottlenecks in the Bayou State

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The emergence of LNG exports as a new, stable source of natural gas demand in the U.S. is reshaping the domestic and international gas markets, and nowhere is that more evident than in Louisiana, the epicenter of the transformation. Lower-48 LNG exports — which were non-existent just three years ago — have climbed to an average of about 3.0 Bcf/d in 2018 to date, and three years from now, these exports will surpass the 10 Bcf/d mark, the equivalent of 10% of total U.S. gas demand as additional liquefaction capacity comes online. Much of that new export capacity will be built along the Louisiana coastline — in the backyard of Henry Hub, the U.S.’s gas benchmark price. This, even as Gulf of Mexico’s offshore gas production is in decline, which means that other gas supplies will be needed in southern Louisiana.

In this Drill Down Report, we take a detailed look at the infrastructure and changing flow and pricing dynamics in Louisiana that will play a critical role in serving global LNG demand and balancing the U.S. gas market. We start by defining the flow model and an analysis of historical and recent flow patterns along the seven pipeline corridors. We then consider the various factors that will continue to drive change in the region over the next five years and wrap up with our outlook for Louisiana flows and pricing.

Key take-aways from the report include:

  • The rise of LNG export demand on the coast and the influx of Marcellus/Utica and Haynesville natural gas into northern Louisiana is reversing gas flow patterns and upending historical pricing relationships in the Bayou State.
  • As liquefaction capacity is added and offshore Gulf gas supply declines, more supply will be needed in southern Louisiana.
  • Northeast inflows and Haynesville supply will inundate northern Louisiana and max out southbound routes to the Gulf Coast by 2020.
  • Without more southbound capacity through Louisiana, a transportation bottleneck will emerge and weaken prices north of the constraint, including at the Perryville Hub in northeast Louisiana, which could fall to more than 25 cents below Henry Hub.

Down Louisiana Way is included in RBN Energy’s 2018 Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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