I Saw Miles and Miles of Texas: Mexican Demand, LNG Exports Pull Marcellus/Utica Gas to Lone Star State

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Marcellus/Utica gas is moving into Louisiana and parts of East Texas and North Texas, targeting markets along the Gulf Coast, competing head-to-head with Gulf Coast production. With domestic markets for Texas and Louisiana gas being lost to Marcellus/Utica producers, Texas and Louisiana producers increasingly are serving more regional and local needs –– and getting geared up to fight for their share of two new and fast-growing demand centers: 1) new liquefaction/LNG export terminals along the Gulf Coast and 2) Mexico, whose imports of U.S. gas have more than quadrupled in the past six years.

But even with these emerging export opportunities, two significant issues still face the markets for these new gas supplies. First, will there be any capacity issues that constrain the ability to move the new supplies to the liquefaction/LNG export facilities and Mexico cross-border points? And second, will there be enough demand for gas from these export markets?

In this Part 1 of our Drill Down Report, “I Saw Miles and Miles of Texas,” we examine the challenges of supply and infrastructure necessary to move Marcellus/Utica gas to the Gulf Coast market. In Part 2, to be published next month, we will review the export facilities expected to handle all of the volumes, and the degree to which Gulf Coast pipeline infrastructure will be able to handle the gas flow changes on the horizon.

Key take-aways from the report include:

  • Favorable production economics will drive continued growth in Marcellus/Utica natural gas production; in contrast, gas output in other regions, including Texas, has sagged and may not rebound in the medium term.
  • The Northeast now produces more gas than it needs year-round; new sources of gas demand will be required as output rises, and Gulf Coast LNG export facilities plus rising demand from Mexico are natural targets.
  • Marcellus/Utica gas will be moved to the Gulf Coast on a number of pipeline projects, mostly reversals of pipes that traditionally moved gas north and east, but many of these projects do not get the gas all the way to LNG and Mexico export outlets, begging the question – how will all that gas get across miles and miles of Texas (and Louisiana)?
  • There are concerns that LNG export volumes may disappoint, or that growth in gas exports to Mexico may slow. What then for Marcellus/Utica’s gas surplus, and for Texas gas producers?

I Saw Miles and Miles of Texas: Mexican Demand, LNG Exports Pull Marcellus/Utica Gas to Lone Star State is the 7th in RBN Energy’s 2016 Drill Down report series, a suite of monthly 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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