Posts from Jason Ferguson

Thursday, 03/07/2019

The Mexican market is critically important to Permian producers. Rising gas demand south of the border — along with expected gains in LNG exports from new liquefaction/export facilities along the Gulf Coast — are key to their plans to significantly increase production of crude oil, which brings with it large volumes of associated gas. All that gas needs a market, and nearby Mexico is a natural. For a number of years now, Mexico’s Comisión Federal de Electricidad has been working to implement a plan to add dozens of new gas-fired power plants and to support the development of new gas pipelines to transport gas to them from the U.S. The new pipelines have been coming online at a slower-than-planned pace. But what pipeline capacity has been added across the border from West Texas is already changing Mexico’s gas market. The El Encino Hub in Northwest Mexico is one such area where there are signs of a shifting supply-demand balance. Today, we continue a blog series on key gas pipeline developments down Mexico way and the implications for gas flows, this time delving into the dynamics at the El Encino Hub.

Wednesday, 01/30/2019

While Permian natural gas pipeline announcements came fast and furious last year, it had been relatively quiet on that front the past few weeks. Leave it to the folks at WhiteWater Midstream to break the lull, which is exactly what they did with the recent announcement of a binding open season for a new interstate pipeline in the heart of the Delaware Basin. Named Steady Eddy, the pipeline would originate in an underserved corner of the Permian and provide access to the Waha Hub, where a number of planned greenfield pipelines leaving the Permian will begin. Today, we look at the details of WhiteWater’s proposed Steady Eddy pipeline project.

Sunday, 01/27/2019

Mexico’s energy sector has been dealing with a fair amount of uncertainty of late. Newly installed Mexican President Andrés Manuel López Obrador has promised to undo elements of the country’s historic energy reform program, limit imports of hydrocarbons, and focus on domestic production and refining. How much will all this affect the export of natural gas from the U.S. to Mexico? It’s too soon to know what the long-term impact might be, but for now, gas exports remain near record highs and the pipeline buildout within Mexico is proceeding. That’s not to say, however, that the infrastructure work has gone without its own set of challenges — many of those were apparent well before the recent political changes. Today, we begin a series examining the opportunities and potential pitfalls ahead this year for Mexico’s natural gas pipeline infrastructure additions.

Monday, 11/26/2018

Permian natural gas markets felt a cold shiver this week, but not a meteorologically induced one of the types running through other regional markets. Gas marketers braced as prices for Permian natural gas skidded toward a new threshold: zero! That’s not basis, but absolute price, a long-anticipated possibility that became reality on Monday. The cause is very likely driven, in our view, by continued associated gas production growth poured into a region that won’t see new greenfield pipeline capacity for at least 10 months. What happens next isn’t clear, but expect Permian gas market participants to be a little excitable or jittery over the next few months. Today, we review this latest complication for Permian natural gas markets.

Wednesday, 09/19/2018

It’s no secret by now that Permian natural gas pipelines have been running near full the last few months, jam-packed like Southern California traffic while trying to whisk away copious volumes of mostly associated natural gas to markets north, south, west and east of the basin. Despite every major artery running near capacity this summer, Permian prices had so far managed to avoid falling below the dreaded $1.00/MMBtu threshold, a precipice that historically defines a gas producing basin as definitively oversupplied. That all changed yesterday, as word came in that Southern California Gas Company, one of the largest recipients of Permian gas, has nearly filled its gas storage caverns and will soon need far less gas hitting its borders. That’s particularly bad news for the Permian, which has few other options if it needs to reduce the supply that is currently flowing west out of the basin to California. A large unplanned outage for maintenance was also announced on one of the pipelines leaving the Permian and heading north to the Midcontinent. As a result, the SoCalGas news and maintenance combined to put a huge dent in Permian gas prices, some of which plunged as low as 50 cents in Wednesday’s trading. Today, we detail this most recent development and the implications for Permian gas takeaway.

Sunday, 08/05/2018

Constructing greenfield pipelines is never easy — just ask any midstream developer you know — but building them across the breadth of Texas comes with its own unique challenges. There’s distance, for starters, and today’s massive associated gas growth in the Permian Basin is occurring more than 400 miles from the closest demand along the Gulf Coast. That makes the pipelines relatively expensive at somewhere near $2 billion a copy. Integrating Permian supply with Gulf Coast demand also requires a big network of pipelines along the coast, as the demand is spread out from Louisiana to Mexico. Few midstream companies have such a network. Kinder Morgan does, one reason why, in our view, the Gulf Coast Express project was the first — and to-date the only — greenfield project from the Permian to proceed with a final investment decision. In the race to be the next Permian natural gas relief valve pipeline, the same hurdles will have to be overcome. On Friday, news came that a group of four companies is planning the Whistler Pipeline, and a closer look at the project reveals it may be capable of meeting the challenges needed to make it a serious player in the Permian pipeline race. Today, we look at the details of the latest Permian natural gas pipeline project.

Thursday, 07/05/2018

There was a time when natural gas prices in the Permian Basin spent most of the summer bouncing within a few cents of the benchmark Henry Hub, as ample pipeline takeaway capacity and seasonally strong demand combined to keep a lid on price blowouts. Times have certainly changed, with ballooning local production overwhelming existing takeaway capacity and widening the price spread between Permian gas markets and Henry Hub. However, the erosion in Permian gas basis has been anything but orderly. The current market is defined by significant swings in gas basis, depending on factors such as pipeline maintenance and weather. So, while the trend in Permian gas basis is decidedly lower, the path to get there is looking like a gut-wrenching roller coaster ride. Today, we look at recent swings in Permian natural gas basis pricing.

Wednesday, 06/27/2018

Permian natural gas fundamentals were rocked with some major infrastructure news on Monday, when Kinder Morgan announced its plans to build the 2-Bcf/d Permian Highway Pipeline (PHP) from Waha to the Texas Gulf Coast. The announcement revealed that EagleClaw Midstream, a Blackstone Energy Partners portfolio company, has signed a letter of intent to become a 50% owner in the project and commit natural gas volumes to the pipeline. Adding firepower to the project, Apache Corp. is committing significant volumes to the pipeline too, with an option to take an ownership stake. While Kinder Morgan and EagleClaw Midstream stopped short of a final investment decision (FID), the destination flexibility that PHP’s tie-ins with other key pipes offer makes the project a major contender in the race to become the second new long-haul natural gas pipeline out of the Permian. Today, we discuss the latest infrastructure development in the Permian natural gas market.

Tuesday, 06/12/2018

Mexico has been slowly increasing import volumes of natural gas from the U.S., utilizing spare capacity in the newest pipelines south of the border that access supply from the Permian Basin’s Waha Hub. The recent increases have been muted somewhat by delays in completing other infrastructure inside of Mexico, but one of those big delays is about to be resolved. TransCanada’s long-awaited El Encino-Topolobampo Pipeline is finally nearing completion, and once it’s online there may be a surprisingly big gain in gas export volumes to Mexico. As most of this gas will be supplied directly from Waha, Mexico’s impact on Permian gas balances is likely to jump materially in the weeks ahead. Today, we examine the latest development in Mexico’s natural gas pipeline buildout and its effects north of the border.

Wednesday, 05/09/2018

The basis blowout at the Waha Hub in the Permian Basin arrived in full force over the last few weeks, with natural gas prices reaching discounts to the Henry Hub not witnessed since 2009. Available takeaway capacity has been quickly eroding on the existing pipeline corridors out of the basin, leaving many in the market pondering where all the incremental gas production will go before a new greenfield expansion pipe relieves the market in late 2019. Last week, a partial answer came in the form of a pipeline expansion project by Enterprise Products Partners and Energy Transfer Partners slated for completion later this year. While the project’s estimated size is far too small to preclude additional greenfield pipelines beyond 2019, it does highlight the attractive economics of brownfield expansions on the Texas intrastate pipelines at Waha. Today, we analyze announced and possible intrastate pipeline projects around Waha.

Sunday, 04/08/2018

Permian Basin natural gas production is growing at a torrid pace. After starting 2017 just below 6 Bcf/d, production is set to breach the 8-Bcf/d mark soon on its way to 10 Bcf/d by the end of 2019. Pipelines flowing out of the basin are coming under increasing strain, and just about every single gas pipeline leaving the Waha hub in West Texas is now being utilized at levels not witnessed in years — if ever. Even routes north from the Permian to the Midcontinent and Midwest markets, traditionally only attractive on the coldest winter days, are starting to look viable year-round. Today, we look at recent gas-price and flow trends in the Permian natural gas market.

Wednesday, 03/21/2018

Mexico’s natural gas pipeline network is entering a crucial phase of expansion with the expected completion of the La Laguna-Aguascalientes and Villa de Reyes-Aguascalientes-Guadalajara pipelines later this year. These new pipelines will be linked together with the existing Roadrunner, Tarahumara and El Encino-La Laguna pipelines to form the second largest integrated natural gas transportation network in Mexico. This system will link central Mexico with the northwestern part of the country, which is already supplied by gas flowing in from the Waha Hub on the U.S. side of the border and provide additional demand markets for Permian Basin natural gas. Fermaca, a Mexico City-based company, is constructing the new route, and its marketing affiliate, Santa Fe Gas, is actively building a natural gas marketing business within Mexico. Today, we examine Fermaca’s natural gas marketing affiliate and its role in bringing new supply from the U.S. to Mexico’s natural gas market.

Monday, 02/12/2018

Mexico’s natural gas market continues to evolve rapidly. New pipelines are being built to move increasing volumes of U.S.-sourced gas to Mexican power plants, industrial customers and other end users. Gas exports from the U.S. to Mexico already average 4.5 Bcf/d and those volumes are sure to rise as more pipelines and power plants come online. Just as important, the government of Mexico has been taking aggressive steps to undo what had been state-owned Petróleos Mexicanos’s (Pemex) near-monopoly on gas pipeline capacity and to encourage a large and diverse group of gas marketers to enter the fray. Today, we examine ongoing efforts to increase transparency, pipeline access and competition in the gas market south of the border, and look at how Comisión Federal de Electricidad’s (CFE) marketing affiliate, CFEnergía, is growing its gas marketing business within Mexico.

Sunday, 10/29/2017

Permian natural gas production recently topped 7 Bcf/d and shows no signs of slowing its growth trajectory. While new pipelines are expected to move additional Permian gas volumes to the Gulf Coast markets by the beginning of 2020, the current paths to those markets are full. Over time, Mexico is expected to export significant volumes directly from Waha, but current amounts are relatively small. As a result, increasing volumes of gas are leaving the Permian on the pipelines that head west to California and north to the Midcontinent. However, the pricing in these markets is downright ghoulish compared to the Gulf Coast and Permian gas is increasingly finding itself in scary market conditions. Today, we analyze recent pricing and flow trends in the Permian natural gas market.

Wednesday, 08/30/2017

In the short term, Permian natural gas will be dealing with the aftermath of Harvey and what it might do to associated gas production from crude oil wells being curtailed due to refinery downtime and storage capacity issues.  But that will soon be behind us, and at that point Permian natural gas production will resume its steep upward trajectory. Just a few months ago, the gas market was still sharpening pencils on potential gas takeaway constraints in West Texas, but congestion in the Waha gas market now appears as likely as another winning season for Alabama football. Where will this tide of natural gas end up? Until a few days ago, the Agua Dulce Hub in South Texas was Number 1 on the list, but a new project has thrown the Katy Hub into the mix as a potential destination. Today we analyze an interesting approach to relieving Permian natural gas market constraints.