I Saw Miles and Miles of Texas – Part 2: How Will Marcellus/Utica Natural Gas Surpluses Reach LNG/Mexico Export Markets?

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Significant volumes of gas are being pushed into two states that have historically been the most prolific U.S. sources of natural gas supply: Louisiana and Texas. The gas supply is on its way to the Gulf Coast, and the facilities to export the gas are either in operation or under construction. But challenges remain for the U.S. Gulf natural gas market. Gas supplies moving into the region from the Northeast must be transported to those export facilities along the coast and to the Rio Grande, in many cases across “Miles and Miles of Texas”. It is not just a matter of distance. Several of these pipelines are “telescoped the wrong way” - that is, they get smaller as they get closer to new delivery points at LNG export terminals along the Gulf Coast and at the Mexico border, thereby limiting capacity on those interstate systems to meet the new demand sources.

Still another challenge to gas supplies targeting overseas and Mexico export markets is associated with the unique structural and regulatory aspects of the Texas natural gas market, which encompasses the largest intrastate pipeline system (those pipes that originate and end within the state) in the U.S. The rules that apply to intrastate pipelines are quite different from FERC-regulated pipelines, which has both advantages and disadvantages for the natural gas supplies that must flow across the state. The big question is––how will these systems work together to deliver inbound gas flows to export markets?

In this Part 2 of our Drill Down Report on the challenges of moving Marcellus/Utica gas to Gulf Coast export markets, we examine the new projects destined to increase natural gas demand for export markets, the pipeline projects necessary to move inbound flows of Marcellus/Utica gas to those markets, and the challenges facing natural gas supplies that must traverse Miles and Miles of Texas. This report includes a detailed explanation of the differences between intrastate and interstate markets and the implications of those differences for natural gas flows across the state.

Key take-aways from the report include:

  • Favorable production economics will drive continued growth in Marcellus/Utica natural gas production; much of the new supply is targeting LNG and Mexico export markets along the Gulf Coast.
  • 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 few of these projects get the gas all the way to LNG and Mexico export outlets.
  • The Gulf Coast regional market faces challenges transporting gas to export facilities along the coast and the Rio Grande, in many cases across "Miles and Miles of Texas".
  • It is not just a matter of distance. Several of these pipelines are "telescoped the wrong way" - that is, they get smaller as they get closer to new delivery points.
  • Still another challenge to gas supplies targeting export markets is associated with the unique structural and regulatory aspects of the Texas natural gas market, which encompasses the largest intrastate pipeline system in the U.S.
  • This report includes a detailed explanation of the differences between intrastate and interstate markets and the implications of those differences for natural gas flows across the state.

I Saw Miles and Miles of Texas – Part 2: How Will Marcellus/Utica Natural Gas Surpluses Reach LNG/Mexico Export Markets? is the 9th 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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