Turn the World Around - The Pivotal Role of the Perryville Hub in Transforming U.S. Natural Gas Flows

Natural gas pipeline takeaway projects under development out of the U.S. Northeast would enable ~10 Bcf/d to flow south from the Marcellus/Utica supply area. About half of that southbound capacity is geared to serve growing power generation demand directly south and east via the Mid-Atlantic states. But another nearly 5.0 Bcf/d is headed southwest to the Louisiana and Texas Gulf Coast for growing LNG export and Mexico demand—and that is on top of about 4.4 Bcf/d of reversal (or backhaul) capacity already added over the past two years. Much of the Gulf Coast-bound backhaul capacity will converge on the Perryville Hub, a market center located in northeastern Louisiana, about 220 miles north of the U.S. national benchmark Henry Hub. As such, the ability for gas to move through Perryville and get to downstream demand market centers will be key to balancing the natural gas markets. Today, we take a closer look at the historical and future pipeline capacity in and around the Perryville Hub.

The Perryville Hub pricing location has long been a pulse-point for gas flows through the Gulf Coast region, although arguably an under-appreciated one, given that it sits in the shadows of Henry Hub. One of the touchstones of a successful trading hub is optionality, and Perryville has no shortage of that. For one, it is a highly connected, high-capacity hub. For another, its location gives it just about 360-degree access to supply regions. Much like Henry Hub (as described in our blog Henry the Hub I Am, I Am), the Perryville pricing hub is not a hub-and-spoke system in the classic sense. Rather it is a collection of pipeline interconnects starting in Ouachita Parish, LA and extending as far east as Madison Parish, LA, but for the most part the supply converges at two major nodes: around Perryville, LA, on the western side of the hub and near Delhi, LA, on the eastern side. The multitude of interconnects allow gas to hop from one pipeline to the other on its way from supply to demand market areas, changing direction along the way if need be. Unlike Henry Hub, which also boasts ample throughput capacity, Perryville historically has seen high utilization of its interconnect capacity but low trading liquidity (as opposed to Henry Hub’s low physical flow utilization and high liquidity—at least in the futures market). In other words, although a large volume of gas physically moves through Perryville, comparatively little of that gas changes hands at the hub.

The interconnects included in the pricing location, as defined by price index publisher Natural Gas Intelligence (NGI), can be categorized into three main buckets. In the first bucket are all interconnects on assets operated by Enable Midstream Partners, specifically its mainline—Enable Gas Transmission’s (EGT, formerly CenterPoint Energy Gas Transmission, CEGT)—and its Line CP, an expansion line from Carthage in East Texas to Perryville. The second bucket includes all points that fall in Boardwalk Pipeline Partners’ Gulf South Perryville Exchange Service (PXS) area, which runs along Gulf South’s 1.4-Bcf/d East Texas-to-Mississippi expansion line (ETX-MS), from the discharge (high pressure) side of the Vixen Compressor Station in Ouachita Parish to the suction (low pressure) side of the Tallulah Compressor Station in Madison Parish, near the Louisiana-Mississippi border. The third and final bucket is a catch-all for any other points between northeastern Ouachita Parish and the Tallulah station that are outside the EGT or Gulf South systems.

Following interconnect additions/expansions in 1994 by then NorAm Gas Transmission (which was acquired by CenterPoint in 1997), and again in 2007 and 2008, the Energy Information Administration (EIA) estimated that average daily throughput at Perryville as of 2008 had risen to 1.8 Bcf/d, triple where it stood in 2003. By 2008, there were 17 pipeline interconnects through the greater Perryville Hub region—15 interstate and two intrastate—totaling 11.8 Bcf/d in delivery capacity and 6.3 Bcf/d in receipt capacity, easily making it one of the largest natural gas market centers in North America. That was only the beginning. Perryville’s role was expanded further in 2009 and 2010 as shale gas production volumes from the Haynesville continued to rise. And by 2012, when CEGT filed an application to establish its Perryville assets as a trading hub, CEGT’s section alone included 21 different inter- and intrastate connections at the hub totaling nearly 9.0 Bcf/d of receipt capacity. The current NGI pricing hub includes those 21 points, plus four interconnects in the PXS area totaling nearly 5.0 Bcf/d of receipt capacity and another 6 Bcf/d on all the other miscellaneous interconnects in the hub.

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