Agua Dulce Hub

Kinder Morgan owns and operates natural gas pipelines across pretty much every part of the U.S., from California to Massachusetts and North Dakota to Florida. But if you look at a map of its gas pipeline assets, you’ll notice a focus on lines in the Lone Star State that serve as critical pathways for Permian- and Eagle Ford-sourced gas flowing to Mexico, Texas’s Gulf Coast and a number of existing and planned LNG export terminals. Now, Kinder is poised to significantly expand its pipeline network in that part of the world with the planned $1.8 billion acquisition of NextEra Energy Partners’ STX Midstream unit, as we discuss in today’s RBN blog. 

Each of the “second wave” liquefaction/LNG export projects along the U.S. Gulf Coast now closing in on a Final Investment Decision (FID) believes it has an edge — that special something that will enable it to cross the finish line ahead of its competitors. Things like a prime location, access to an existing network of natural gas pipelines, lower capital costs, or going with smaller “midscale” liquefaction trains instead of traditional big ones. Some tout the experience and depth of their executive teams, while others claim that thinking outside the box is key. Time will soon tell which two or three (or four) projects advance to FID. Today, we continue our series on the next round of liquefaction/LNG export terminals “coming up” with a look at NextDecade’s plan for the Rio Grande LNG project in Brownsville, TX, which would export large volumes of Permian and Eagle Ford gas.

In the short term, Permian natural gas will be dealing with the aftermath of Harvey and what it might do to associated gas production from crude oil wells being curtailed due to refinery downtime and storage capacity issues.  But that will soon be behind us, and at that point Permian natural gas production will resume its steep upward trajectory. Just a few months ago, the gas market was still sharpening pencils on potential gas takeaway constraints in West Texas, but congestion in the Waha gas market now appears as likely as another winning season for Alabama football. Where will this tide of natural gas end up? Until a few days ago, the Agua Dulce Hub in South Texas was Number 1 on the list, but a new project has thrown the Katy Hub into the mix as a potential destination. Today we analyze an interesting approach to relieving Permian natural gas market constraints.

The current phase of Mexico’s natural gas pipeline buildout, led by the country’s Comisión Federal de Electricidad (CFE), is nearing completion. With 22 new pipelines built or under construction, the effort has dramatically reshaped Mexico’s natural gas supply portfolio. The capacity of the pipeline network within Mexico has been tripled with the addition of 18 new pipelines, while four new pipelines on the U.S. side of the border will add almost 6 Bcf/d of export capacity by late 2018. As part of the building spree, CFE also initiated development of two new gas headers to be built in Texas: a 6-Bcf/d header at Waha in West Texas that was recently completed by a consortium of Carso Energy, MasTec, and Energy Transfer and the 5-Bcf/d Nueces Header, now under construction by Enbridge at Agua Dulce in South Texas. Today, we discuss CFE’s Nueces Header and its role in moving more gas south.

Rising natural gas exports from South Texas and increasing production of “associated” gas in the Permian Basin are driving the development of several new gas pipelines from West Texas to the Agua Dulce gas hub and nearby Corpus Christi. The age-old questions apply: How much new pipeline capacity will be needed, and how soon? The construction of these new pipelines also raises the question of how a potential flood of new gas supply from the Permian to the South Texas coast might affect plans by others to flow gas down the coast from Houston. Today we continue our look at proposed gas pipelines from the Permian to Agua Dulce and Corpus Christi with a review of two more projects and their potential impact.

The combination of rising production of “associated” natural gas in the Permian Basin and rising exports of pipeline gas to Mexico—and soon, LNG on ships out of planned South Texas export terminals—is driving the need for new gas pipelines from the Permian to the Corpus Christi area, including the all-important Agua Dulce gas hub in Nueces County, TX. Yesterday (Monday, April 3), NAmerico Partners unveiled plans for Pecos Trail, a proposed 468-mile, 1.85-billion-cubic-feet-a-day pipeline aimed squarely at linking emerging gas supply with emerging gas demand. Pecos Trail joins two other projects announced within the past few weeks that target the same opportunity. Today we look at the gas side of the need for new takeaway pipelines out of the U.S.’s hottest shale play, and NAmerico’s newly announced plan to address it.

South Texas—and its primary trading hub, Agua Dulce—is emerging as the fulcrum for U.S. natural gas producers and growing demand markets on the Texas Gulf Coast and across the border in Mexico. Between the Freeport and Corpus Christi LNG export projects and cross-border pipeline projects to Mexico, nearly 4.0 Bcf/d of export capacity is being developed in South Texas over the next few years. Meanwhile, U.S. producers as far north as the Marcellus/Utica are jockeying to capture this new demand. Large investments are being made to expand and reverse traditional pipeline flows across the Texas-Louisiana border to get gas all the way down to South Texas and the Texas-Mexico border. But will enough capacity be available when the demand shows up? Today, we break down the natural gas supply/demand picture in South Texas and what it will take to balance the market there as exports ramp up.

As natural gas exports to Mexico continue to rise and as construction proceeds on liquefaction/LNG export terminals in Freeport and Corpus Christi, TX, the need to transport increasing volumes of gas down the Texas Gulf Coast becomes ever more urgent. And moving gas down the coast is no easy task; the Lone Star State’s convoluted mix of interstate and intrastate pipelines were designed primarily to flow gas up the coast from South Texas and Gulf Coast production areas to the greater Houston Ship Channel area—and from there on interstate pipes to Louisiana and beyond. Today we use RBN’s Fretboard Model to discuss whether existing and planned southbound pipeline capacity will be sufficient to meet export demand.

Some 3.2 Bcf/d of new LNG export capacity will be coming online along Texas’s Gulf Coast over the next two and a half years, and 8 Bcf/d of new natural gas pipeline capacity is under development to transport vast quantities of gas through Texas to the Mexican border. But while gas-export opportunities abound, Texas gas production is down, mostly due to a big fall-off in Eagle Ford output, so exporters will need to pull gas from as far away as the Marcellus/Utica to meet their fast-growing requirements. That will flip Texas from a net producing region to a net demand region once when you factor in exports that will flow through the state. This profound shift will put extraordinary pressure on Texas’s unusually complex network of interstate and intrastate pipeline systems, which will need to be reworked and expanded to deal with the new gas-flow patterns. It also will have a significant effect on regional gas pricing––putting a premium on Texas prices. These issues and more are addressed in RBN’s latest Drill Down Report, highlights of which we discuss in today’s blog.

The natural gas pipeline grid in Texas is undergoing a historic transformation as interstate pipelines designed to move gas north and east from the Gulf Coast region are being reversed, enabling Marcellus/Utica gas to flow to LNG export markets in Louisiana and Texas, and via Texas for pipeline export to Mexico.   With a history of oil and gas production going back more than 100 years, no region in the world has a more convoluted network of pipelines than Texas.  The state can be viewed as a dense “spaghetti bowl” of interconnected interstate and intrastate systems that defies traditional gas market analysis, in part because intrastate pipelines do not post receipts and deliveries on their systems as required by federally regulated interstate pipelines.  However, it is possible to assess the dynamics of regional flows and capacities by examining the morass of flow data available from interstate pipelines in the region that connect to the intrastates. To help make sense of this data, RBN has developed a simplified model that facilitates an understanding of Texas natural gas flows and capacities that we call (unsurprisingly since it’s RBN) the Fretboard Model because the region’s interstate pipelines and capacity constraints look (with just a bit of artistic license) very much like a guitar fretboard.  In today’s blog, we introduce this model.