New Permian Basin Pipeline May Inpact Haynesville Gas Price
Whistler deliveries weigh on S. Texas basis; Permian gas floods Texas Gulf Coast
Highlights
Agua Dulce, Texas Eastern STX, Tenn Zone 0 move lower
Whistler deliveries to interstates continue ramping up
Permian Basin now key supplier to Texas Gulf Coast market
Author J Robinson Kelsey Hallahan 13 Aug 2021
Gas delivered from Whistler Pipeline to the South Texas market is pressuring basis prices there as Permian Basin supply becomes increasingly ubiquitous along the Texas Gulf Coast.
Following the commercial startup of Whistler Pipeline July 1, cash basis at hubs near the mainline's terminus have moved sharply lower amid the influx of additional supply from West Texas.
At Agua Dulce, basis prices have averaged a nearly 8 cent discount to the Henry Hub over the past six weeks – down from a 1 cent discount in June. Over the same period, basis prices at Texas Eastern STX and Tennessee Zone 0, have fallen about 7 cents and 9 cents, respectively, S&P Global Platts data shows.
Compared to summer 2020, cash basis at all three hubs is also lower.
As an intrastate transmission line, the 450-mile, 42-inch diameter Whistler Pipeline from Waha to Agua Dulce, is not required to publicly report volumes flowing on its mainline, making it difficult to determine how much Permian Basin gas is being delivered to the South Texas market.
Earlier this month, though, the pipeline began reporting deliveries to connecting interstates, including Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline and Transcontinental Gas Pipe Line. Over the past week, combined deliveries have ramped up to over 300 MMcf/d, signaling a rise in commercial activity – likely including an increase in supply delivered to South Texas.
Gulf Coast gas market
Beyond the downward pressure on South Texas cash basis, Whistler Pipeline has had no other immediately discernable impacts on the South Texas gas market thus far.
Over the past six weeks, pipeline demand from Mexico has actually declined, despite lower basis prices in the South Texas market. Since early July, exports from Texas to Mexico have averaged about 5.65 Bcf/d, down from an estimated 5.9 Bcf/d in June.
Limited visibility on production in the Eagle Ford shale also shows no immediate impact from the additional Permian supply.
The growing pervasiveness of low-priced Permian gas on the Texas Gulf Coast – which includes gas delivered on Kinder Morgan's Gulf Coast Express and Permian Highway Pipelines – may ultimately increase gas-on-gas competition with Eagle Ford production. It may also increase competition with gas flowing southbound from the Haynesville or the Appalachian Basin.
The growing supply of Permian gas on the Texas Gulf Coast also raises questions about whether, and how, liquefaction facilities in the Lone Star State might source responsibly produced gas molecules for export.
Responsibly Sourced LNG
While a standard definition for responsibly sourced gas, or RSG, has yet to emerge from the natural gas industry, many global buyers are now expressing a preference for increasingly rigorous tracking methodologies.
In oil-heavy associated gas basins, like the Permian, some producers have begun phasing out high-bleed pneumatic devices that vent methane – ExxonMobil among them. Others have proposed remote methane tracking technologies. Increasingly, though, buyers are demanding more continuous ground-based tracking measures, like the ones proposed by Project Canary or Avitas. Some buyers have even expressed a preference for certified physical molecules, not just certificates.
Earlier this month, Chesapeake Energy was among the first US producers to make a sizeable down payment on its bet that most global buyers will prefer the actual physical molecules. With its $2.2 billion acquisition of Haynesville shale producer Vine Energy, Chesapeake is moving forward with RSG certification for physical production that could more credibly reach a Louisiana export terminal before mixing with other molecules – currently a tougher sell for more distant shale basins where production must traverse a labyrinth of pipelines before reaching an export terminal.
Assuming global buyers opt for the most stringent methane tracking and a more credibly-sourced physical RSG molecule, the growing ubiquity of Permian gas on the Texas Gulf Coast raises numerous questions about how Texas liquefaction terminals and producers may respond to the trend.
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Replies to This Discussion
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Permalink Reply by Mister Sunday on -
We saw this supply glut coming for a while now. This RSG Physical Molecule thing is kinda weird. I'm not sure exactly what it means.
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Permalink Reply by Skip Peel - Mineral Consultant on
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There doesn't appear to be a widely accepted definition of Responsibly Sourced Gas (RSG). Therefore it is a "buzz word", a sales tool adopted by natural gas producers to try to differentiate themselves in a commodity space that has a lot of challenges. I'm feel sure there would be much debate and disagreement over the meaning of "responsible" in this connotation. As per our usual competing camps, hard green environmentalists would argue that the term is "greenwashing" and that no hydrocarbon is worth the climate catastrophes that it will cause. They may be right. The industry would argue that our energy needs for the foreseeable future require natural gas and that they can discover and eliminate enough fugitive emissions that other climate technologies such as Carbon Capture and Sequestration (CCS) will allow us to reach our GHG emission goals. They may be right.
This debate will go on for some years but the bottom line is, what will voters accept? Cheap energy is crucial to consumers, business and industries alike. Until alternate energy sources are cost equivalent to energy produced by hydrocarbons, many voters will not accept energy transitions that increase their out of pocket costs. That transition will occur but the debate now is, when? That point looked decades away just a few years ago but the evolution of energy options and surprising reductions in cost now make that point appear to be late this decade. It will take more than just lower cost as the O&G industry, and their proxies, will continue to fight the transition. The other side of that transition point coin is the impacts of climate change. We are seeing those now across the globe and if, as scientists predict, the extremes of weather continue to increase, many voters will be convinced that they should vote to take rational actions to reduce atmospheric CO2 and methane.
So, what does this mean for GHS members? I think 99% of us are focused on natural gas and hold the opinion that it should have a longer useful life than oil. We have missed several windows of opportunity to place natural gas at the top of options for reducing GHGs. The Obama Clean Power Plan was the opportunity to retire coal on an accelerated timeline and replace that generating capacity with natural gas fired plants. Looking back, it was a huge mistake not support that policy. Then as the evidence mounted as to the level and climate damage of methane emissions, Industry and regulators were slow to require monitoring and reduction of methane emissions. They still are but are slowing accepting the inevitable that the financial markets and a majority of the public have accepted the science, become convinced of the risk and chosen a different energy future. There is no going back under any circumstance and the transition will continue. The only question is the pace and that depends on the voters.
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Permalink Reply by Mister Sunday on
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Thank You for that excellent Big Picture breakdown, but I was more wondering about this statement, "Some buyers have even expressed a preference for certified physical molecules, not just certificates."
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Permalink Reply by Skip Peel - Mineral Consultant on
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You're welcome. All those terms are just more "buzz' and promotional spin. I don't think there is an agreed upon definition for any of these terms at this point. It means what you want it to mean. At some point market forces may define the terms within their own operating spaces. Traders and investors in natural gas are the most likely source of definitions. One that relates to market price/value. If buyers are willing to pay more for natural gas/LNG that carries a definition regarding its carbon life cycle, and some appear to be, that will move the needle.
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