The natural gas flow patterns that characterized the U.S. energy-delivery sector for the decades preceding the Shale Revolution are gradually being undone, and few, if any, states are more affected by these changes than Texas. The state remains the nation’s largest natural gas producer, and it still produces nearly twice as much gas as its consumes within its borders. But traditional Northeast and Midwest markets for Texas gas are being ceded to Marcellus/Utica producers, and more and more Northeast gas is flowing south/southwest to the western Gulf Coast, drawn by power/industrial demand, new LNG export terminals and rising pipeline-gas exports to Mexico. Today we begin a look at the dramatic shifts in gas flows out of Texas through key gas pipeline exit points.
To get a sense of the impact the combination of increased Marcellus/Utica natural gas production, booming gas sales to Mexico, and rising LNG exports is having on the Lone Star State, look no further than changing flows on Texas’s network of interstate and intrastate pipelines. As we said recently in the third episode of our four-part Drill Down Report, “I Saw Miles and Miles of Texas,” Northeast gas production now averages about 22 Bcf/d (roughly as much as Texas and Louisiana combined) and is likely to continue rising under all but the most pessimistic price scenarios. Export demand—via LNG-laden ships to South America, Europe and Asia, and via pipelines to Mexico—is pulling increasing volumes of Marcellus/Utica gas south/southwest, and in the process is undoing historical gas flow patterns in Texas. These changing flow patterns also reflect the fact that Texas gas production is off about 10% (or 1.9 Bcf/d, to ~18 Bcf/d) so far in 2016 versus the same period last year, mostly due to output declines in the Eagle Ford, the Barnett Shale, the Gulf Coast region, and Texas’s part of the Granite Wash—declines that, taken together, far exceed production gains in the Permian Basin, the only part of the state that’s seen gas-output growth lately (see It Takes Two).
Texas’s gas production still exceeds in-state demand by a considerable margin; demand by residential, commercial, industrial and power users within the state has averaged about 9.7 Bcf/d year to date, or about 54% of Texas production. Gas not needed to meet in-state demand has traditionally moved north, south, east and west out of Texas on the many interstate pipelines crossing its border to other parts of the U.S. and to Mexico. The five primary flow corridors/exit points for net flows out of the state are shown in the schematic below (Figure 1)—which, by the way, depicts interstate gas pipelines in blue and intrastate pipes in red. First there’s the historical flow from southeastern Texas into southern Louisiana and from there to markets in the eastern and southeastern U.S. (Exit Point A); next is the flow from northeastern Texas into northern Louisiana and then on to the Southeast, Midwest and Northeast (Exit Point B).