Perryville Hub

The natural gas market dynamics that were expected to turn gas flow patterns and price relationships in the Eastern U.S. on their heads and, in turn, transform supply-demand dynamics in Louisiana — including around the U.S. price benchmark Henry Hub — have come to fruition. LNG exports have surged as new liquefaction and export terminals have come online, injecting a new demand source along the Louisiana coastline. Producers have lined up to serve that demand. And midstreamers have worked to get the gas there, reversing and expanding existing northbound pipelines to move gas south into and through the Bayou State. Now, Louisiana’s gas market is nearing a critical juncture: the pipelines that connect the supply gateways in northern Louisiana to the demand centers along the Gulf Coast are nearing saturation. Today, we begin a series providing an update on Louisiana’s gas pipeline constraints and the projects lining up to alleviate them.

An influx of natural gas supply in northern Louisiana — from Marcellus/Utica inflows and the rebound in Haynesville Shale production — is not only reversing long-held flow patterns but is also starting to fill up existing pipeline capacity on routes to the Southeast U.S. and the Louisiana Gulf Coast, where demand is growing. As more LNG export capacity comes online in the Bayou State, more gas will be needed at the coast, and, with existing routes to the coast filling up, more pipeline capacity will be needed as well. These factors are expected to transform the Louisiana gas market over the next several years, with impacts to prices, transportation values and basis, and with repercussions for both the U.S. gas market and global LNG trade. Today, we discuss highlights from our new Drill Down Report on the fast-changing Louisiana gas flow patterns and the need for more pipeline capacity.

Over the next two years, increasing natural gas demand for Gulf Coast LNG exports will reverse flow patterns across the Southeast/Gulf region, resulting in supply/demand imbalances, pipeline capacity constraints and regional price aberrations. The most significant of these developments will occur in the backyard of Henry Hub, Louisiana, where growing supplies in the north of the state will compete for pipeline capacity to get down to coastal export facilities. More Louisiana north-to-south pipeline capacity is needed. The only questions are where the capacity is needed most, and who will build it? Today, we continue our review of Louisiana gas supply, demand and transportation capacity.

The Louisiana natural gas market has undergone major changes in recent years, from the decline of its offshore and onshore production volumes to the emergence of new export demand from LNG terminals. But there are many more changes on the way. The industry has plans to add another 5.0 Bcf/d of liquefaction and export capacity in the Bayou State between now and 2023. At the same time, there are a slew of pipeline projects designed to carry Marcellus/Utica gas supply to the Perryville Hub in northeastern Louisiana. And, Louisiana’s own gas supply is soaring from the Haynesville Shale. The timing of these emerging factors will drive supply-demand economics and volatility in the region — including at the national pricing benchmark Henry Hub — over the next five years. Today, we take a closer look at the timing and extent of the supply and demand factors affecting the Louisiana gas market.

The Louisiana natural gas market is in a state of major flux. The state’s supply mix has changed drastically, with Offshore Gulf of Mexico production declining over the past few years and the long-dormant Haynesville Shale making somewhat of a comeback in the past year. At the same time, four new liquefaction trains at Cheniere Energy’s Sabine Pass LNG terminal have added more than 3.0 Bcf/d of export demand that didn’t exist before 2016. These trends signal a shift in Louisiana’s supply-demand balance and are a prelude to big changes yet to come as producers and midstreamers look to provide solutions for balancing the market. Today, we continue our deep-dive into recent and upcoming changes in the Louisiana market, this time focusing on flow trends across the state’s North, Offshore Gulf and Central pipeline corridors.

With LNG export demand rising along the Gulf Coast, there are big changes coming to the Louisiana natural gas supply-demand balance, with significant implications for the national benchmark pricing location Henry Hub. The state’s growing demand center is attracting midstream investment and supply from two of the fastest growing producing regions — Appalachia’s Marcellus/Utica and West Texas’s Permian. An analysis of pipeline flow data is already providing clues as to how markets will evolve in the Bayou State. Today, we continue our flow analysis of the Louisiana pipeline corridors, this time with a focus on interstate flows across the state’s western border.

The supply-demand dynamic in Louisiana — and around the national benchmark pricing location Henry Hub — is rapidly changing, with LNG exports providing a new demand source in the state and both producers and midstreamers in high gear to push more supply there. These factors will disrupt existing flow patterns and pricing relationships in the region over the next two or three years, eventually turning the market entirely on its head. Today, we continue our series on the Louisiana market transformation with a detailed look at the infrastructure and gas flow trends already underway, starting with what’s going on in the eastern half of the state.

There was a time many moons ago when vast quantities of natural gas from offshore Louisiana production flowed through scores of gas processing plants along the coast, then moved north and east in pipelines destined for the Northeast and Midwest. Those flow patterns have since been turned on their head, with offshore production steadily declining and the need for gas supplies for LNG exports along the coast ramping up, driving gas southward to meet that demand. That southbound gas includes Haynesville production — now back in growth mode — and a deluge of inflows from the Marcellus/Utica on reversed pipelines and new pipes. Supply in northern Louisiana will continue rising, while demand in southern Louisiana will do the same. With Henry Hub at the epicenter of this transformation, the consequences not only for Louisiana but for the entire natural gas market will be far-reaching. Today, we begin a series to examine how Louisiana natural gas flowed historically, the shifts that have already happened, the impact of more changes just ahead, and what it all means for the future of natural gas in Bayou Country.

Demand for U.S. natural gas exports via Texas is set to increase by close to 6 Bcf/d over the next few years.  At the same time, Texas production has declined more than 3.0 Bcf/d (16%) to less than 17 Bcf/d in the first half of November from a peak of over 20 Bcf/d in December 2014, and any upside from current levels is likely to be far outpaced by that export demand growth. Much of the supply for export demand from Texas will need to come from outside the state, the most likely source being the only still-growing supply regions—the Marcellus/Utica shales in the U.S. Northeast. Perryville Hub in northeastern Louisiana will be a key waystation for southbound flows from the Marcellus/Utica to target these export markets along the Louisiana and Texas Gulf Coast, particularly given the hub’s connectivity and prime location. Today, we look at the pipeline expansion projects into Perryville that will make this flow reversal possible.

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.