NGPL

Permian natural gas prices have been on a wild ride lately, trading more than $5/MMBtu below zero in early April before recovering to just above zero over the last few weeks. It’s hardly a secret that the Permian’s gas market woes have been the direct result of production exceeding pipeline capacity. That situation is set to change in a few months, when Kinder Morgan starts up its 1.98-Bcf/d Gulf Coast Express Pipeline, providing much needed new takeaway capacity. And that’s not all GCX will do. Its start-up will shift huge volumes of gas toward the Texas Gulf Coast that currently flow out of the Permian to other markets, likely causing a ripple effect across more than just the West Texas gas market. Today, we look at how Kinder Morgan’s new gas pipeline will redirect significant volumes of Permian gas currently flowing north to the Midcontinent.

There was a time when natural gas prices in the Permian Basin spent most of the summer bouncing within a few cents of the benchmark Henry Hub, as ample pipeline takeaway capacity and seasonally strong demand combined to keep a lid on price blowouts. Times have certainly changed, with ballooning local production overwhelming existing takeaway capacity and widening the price spread between Permian gas markets and Henry Hub. However, the erosion in Permian gas basis has been anything but orderly. The current market is defined by significant swings in gas basis, depending on factors such as pipeline maintenance and weather. So, while the trend in Permian gas basis is decidedly lower, the path to get there is looking like a gut-wrenching roller coaster ride. Today, we look at recent swings in Permian natural gas basis pricing.

Permian natural gas fundamentals were rocked with some major infrastructure news on Monday, when Kinder Morgan announced its plans to build the 2-Bcf/d Permian Highway Pipeline (PHP) from Waha to the Texas Gulf Coast. The announcement revealed that EagleClaw Midstream, a Blackstone Energy Partners portfolio company, has signed a letter of intent to become a 50% owner in the project and commit natural gas volumes to the pipeline. Adding firepower to the project, Apache Corp. is committing significant volumes to the pipeline too, with an option to take an ownership stake. While Kinder Morgan and EagleClaw Midstream stopped short of a final investment decision (FID), the destination flexibility that PHP’s tie-ins with other key pipes offer makes the project a major contender in the race to become the second new long-haul natural gas pipeline out of the Permian. Today, we discuss the latest infrastructure development in the Permian natural gas market.

Permian Basin natural gas production is growing at a torrid pace. After starting 2017 just below 6 Bcf/d, production is set to breach the 8-Bcf/d mark soon on its way to 10 Bcf/d by the end of 2019. Pipelines flowing out of the basin are coming under increasing strain, and just about every single gas pipeline leaving the Waha hub in West Texas is now being utilized at levels not witnessed in years — if ever. Even routes north from the Permian to the Midcontinent and Midwest markets, traditionally only attractive on the coldest winter days, are starting to look viable year-round. Today, we look at recent gas-price and flow trends in the Permian natural gas market.

Natural gas flows and market dynamics are shifting at national benchmark Henry Hub. Supply receipts at Henry this year to date have doubled since the comparable period last year to nearly 450 MMcf/d, on average. That’s also a five-fold increase from the same period in 2016. In fact, current gas flows through the hub are the highest we’ve seen since 2009. The last time we saw this level of flows through the hub was when Gulf of Mexico offshore gas production volumes — much of which hit the U.S. pipeline system in southern Louisiana — were still topping 6.0 Bcf/d. That was also before the Marcellus/Utica Shale gas supply ballooned, effectively emptying out the pipeline capacity that used to flow gas north from the Gulf Coast. Now, many of those pipelines have reversed flows and the hub is showing signs of becoming a destination market for that Northeast gas and other supply targeting LNG export demand on the Gulf Coast. Today, we continue our short series looking at the changing physical flows at Henry Hub.

Permian natural gas production recently topped 7 Bcf/d and shows no signs of slowing its growth trajectory. While new pipelines are expected to move additional Permian gas volumes to the Gulf Coast markets by the beginning of 2020, the current paths to those markets are full. Over time, Mexico is expected to export significant volumes directly from Waha, but current amounts are relatively small. As a result, increasing volumes of gas are leaving the Permian on the pipelines that head west to California and north to the Midcontinent. However, the pricing in these markets is downright ghoulish compared to the Gulf Coast and Permian gas is increasingly finding itself in scary market conditions. Today, we analyze recent pricing and flow trends in the Permian natural gas market.

Natural gas deliveries for export via Cheniere Energy’s Sabine Pass LNG terminal in Louisiana reached a record in late July, topping 2.5 Bcf/d. In the first seven months of 2017, exports have added an average of 1.5 Bcf/d — or more than 300 Bcf total — of baseload gas demand year on year. Thus far, the terminal has been operating with three liquefaction trains. Now the fourth train, which would bring on another 650-MMcf/d of potential export demand, is nearing completion. The incremental gas deliveries are scheduled to come just as winter heating season is kicking off and likely will tighten the gas market. Today, we look at the latest developments at the terminal.

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.

The Waha Hub in West Texas figures to play a prominent role in supplying natural gas to Mexico soon, as pipelines connecting the Permian Basin to the international border are now complete and supplying small volumes to Northwest Mexico. As additional pipelines and power plants come online south of the border over the next 12 months, a meaningful ramp-up in flows from Waha to Mexico is expected. Facilitating those flows will be a Waha-area header recently built by a consortium of Carso Energy, MasTec and Energy Transfer Partners for Mexico’s Comisión Federal de Electricidad (CFE). With 6 Bcf/d of capacity and multiple pipeline interconnects, the header stands to dramatically improve interconnectivity among gas pipelines at Waha, but it has largely stood in the shadows of Mexico’s pipeline buildout. Today we continue our series on the Waha Hub with a look at CFE’s Waha header and its expected role in handling Permian-sourced gas.

U.S. LNG exports via Cheniere Energy’s Sabine Pass LNG export facility are poised to be a major demand driver of the domestic natural gas market in 2017. Pipeline deliveries to the terminal have more than tripled since mid-2016 and are set to climb further as more liquefaction capacity ramps up. With two liquefaction trains already operational, the Federal Energy Regulatory Commission last month approved Train 3 to begin operations and also green-lighted the start-up of Train 4 commissioning. Today, we provide an update of Sabine Pass’s export activity and its potential effect on U.S. gas demand this year.