Turn the World Around - Perryville Hub's Pivotal Role in Transforming U.S. Natural Gas Flows, Part 2

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.

While it is not located within the Lone Star State, the Perryville, LA gas hub is an important interconnection point for a significant portion of the Marcellus/Utica gas that has begun moving to the Gulf Coast—in both Louisiana and Texas, and that soon will be helping to supply new LNG export terminals along the Texas Gulf Coast along with growing demand from power plants and other gas customers in Mexico. As detailed in our latest Drill Down report, by fourth quarter of 2019, Texas will have 3.2 Bcf/d of all-new LNG export capacity along its Gulf Coast (see also Catch a Wave and Last Mile of the Way), as well as six new pipeline projects with the capacity to deliver another 8.0 Bcf/d to Mexico (see It Takes Two, Part 2). Even if, as we expect, only about 6.0 Bcf/d of that new export capacity gets used, that still is a significant increase in demand in the state in relatively short order.

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The NATGAS Permian Report is a weekly natural gas fundamentals analysis focusing entirely on the key market drivers within the Permian basin. The report contains details and forecasts around natural gas production, demand, and pricing. It offers a summary of pipeline outflows and capacities from the Permian to neighboring regions, outlining the key shifts in flows to the West, MidCon, and Texas intrastate markets.

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And Texas production is not keeping pace with all of this incremental demand. As we discussed in It Takes Two, Part 3, rig counts have dropped dramatically in Texas production areas and the state’s production has averaged 17.5 Bcf/d this year to date, down 2.0 Bcf/d (~10%) from the same period in 2015, according to modeled production data from PointLogic Energy. As of the first half of November (2016), it was down to an average 17 Bcf/d, down 3.3 Bcf/d from the all-time monthly-average peak of 20.3 Bcf/d in December 2014.The result of the production and demand trends is a tightening supply/demand balance in Texas. That’s where Marcellus/Utica supply and Perryville Hub come in. There will be an increasing need for Marcellus/Utica gas in Louisiana and Texas. And the need to transport increasing and significant volumes of natural gas from the Marcellus/Utica to liquefaction/LNG export facilities in Louisiana/Texas and through Texas to Mexico will require a fundamental repurposing of the existing interstate and intrastate pipeline grid. A number of new pipelines will be needed as well; and some capacity has already been built with more projects already under way. Much of the new Gulf Coast-bound backhaul capacity—about 5.0 Bcf/d—will converge on the highly liquid and capacity-rich Perryville Hub.

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