The Shift - Flurry of Changes Continue in Texas Gulf Coast Gas Markets

When it comes to Texas natural gas markets, the Permian tends to steal the show. With its roughly 2 Bcf/d of annual production growth, constrained pipelines and absurdly cheap — sometimes even negative — pricing, it’s hard for the other gas hubs in the Lone Star State to garner much attention. However, the myopic focus on West Texas overlooks a noteworthy gas market shake-up taking place on the Texas Gulf Coast, where most of the Permian’s incremental gas production is headed and where multiple new liquefied natural gas facilities are coming online to move the new supplies into world markets. Also, new export pipelines are moving increasing volumes south of the border to Mexico. Today, we provide an update on the latest in Texas Gulf Coast gas infrastructure changes and their potential impacts on the region’s supply and demand balance.

Last summer, we wrote a two-part blog series called “Get Ready” in which we discussed the changes coming to the Gulf Coast gas market. In Part 1, we laid out the general flow patterns within Texas, with a particular focus on how natural gas makes its way from other regions, such as the Permian and East Texas, to hubs along the water, primarily the Houston Ship Channel (HSC) and South Texas regional hubs. At the time, prices at HSC had shifted to a discount versus the benchmark Henry Hub, after spending much of 2018 at a premium, and in Part 2, we pulled apart some of the drivers of the HSC price shift: namely a pipeline reversal on the Gulf South Pipeline that resulted in incremental supply showing up at the hub before the start-up of the Freeport liquefied natural gas (LNG) export facility.

A lot has happened since then. By the end of summer 2019, Freeport LNG had significantly ramped up its commissioning activities — and with that, its feedgas intake for liquefaction and export. More recently, the facility brought its Train 1 into commercial service a few weeks ago. That event was quickly followed by the commercial start of Train 2 just a few days ago, and gas flows to the export facility have surged in the days hence. While LNG exports at Freeport are standalone bullish for HSC prices, new Permian supply into the coastal markets of Texas has more than met that rising demand and kept prices under pressure.

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