Go All the Way - Proposed Pipelines Would Land Permian Natural Gas on LNG Terminals' Doorstep

Thursday, 04/06/2023  Published by: Jason Ferguson  rbnenergy.com

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The Permian natural gas pipeline build-out is entering a new era. With numerous LNG terminals set to expand exports along the U.S. Gulf Coast through the end of this decade, the need to link Permian gas supply to those facilities has never been greater. While there have been three greenfield pipelines built out of the Permian in the last five years, with a fourth on the way in 2024, each has ended in the same general area west of Houston or farther south near Corpus Christi. However, market needs are shifting, with most of the next wave of LNG export capacity to be added east of Houston, closer to Beaumont and in southeastern Louisiana, and those facilities want access to Permian gas. As a result, we weren’t surprised this month when two new proposals to directly link gas from West Texas markets to those export terminals were announced. If built, Targa Resources’ Apex and WhiteWater Midstream’s Blackfin projects could significantly alter Texas gas markets and how Permian supplies move to their final destination. In today’s RBN blog, we look at the latest developments in Texas gas pipeline infrastructure.

Permian natural gas markets have been in steady growth mode for over five years now, providing a plethora of interesting topics to discuss in blogs and in RBN’s weekly NATGAS Permian report, from negative gas prices to a massive long-haul pipeline infrastructure build-out. That said, it has been somewhat quiet in the Permian lately. Though production growth remains firmly intact (see our 2023 Permian Outlook), negative prices at Waha haven’t been all that common of late and Waha basis has been relatively strong by recent historical standards. Infrastructure news has also been a little scarce the past few months, after an active 2022 saw the 2.5 Bcf/d Matterhorn Express receive a positive final investment decision (FID), in addition to the sanctioning of the 500 MMcf/d Whistler Expansion and the 550 MMcf/d Permian Highway Pipeline (PHP) Expansion. However, activity may be about to pick up.

Before we dive into today’s blog, we need to issue a disclaimer. Neither of the two new pipelines we are discussing today have publicly received approval from their backers. Rather, the only publicly available information we have on them comes from our scouting of the Texas Railroad Commission’s (RRC) pipeline permit database, which indicates that both Targa and WhiteWater posted applications during the first quarter. We would note that the mere existence of an RRC permit application, called a T-4, does not mean a pipeline will move forward. Still, the information contained in the T-4 does give us a first look at a prospective pipeline’s route, providing potentially valuable insights into the project’s impact. Armed with that information, let’s look at how Targa’s Apex and WhiteWater’s Blackfin might integrate into the Permian and Gulf Coast gas markets.

We’ll start with WhiteWater’s Blackfin Pipeline, whose proposed route is shown in Figure 1 as the dashed purple-and-black line. From the RRC T-4 filing we know that Blackfin would start in Colorado County, TX, at a point that appears to be just where Kinder Morgan’s PHP ends. Though we don’t know for sure which pipelines would provide supply into Blackfin, PHP seems a logical candidate, though there are a number of others in the same general area of Colorado County. From there, Blackfin heads northeast through Austin and Waller Counties, crossing the planned Matterhorn Express Pipeline (dashed yellow-and-black line) just northwest of the Katy Hub (red dot near center of map), before turning east north of Houston in Montgomery County. From there, Blackfin would head directly east across Liberty and Hardin counties before coming to an end in southeastern Jasper County, north of Beaumont (see inset map for detail). While we have no way of knowing Blackfin’s delivery points, it does curiously end right where the proposed CP Express Pipeline (dashed red-and-black line) would begin and is very close to other pipelines and proposed LNG facilities in the Beaumont/Port Arthur area. In total, the permit indicates Blackfin would traverse 193 miles along the Texas Gulf Coast, with 35 miles of 36-inch-diameter pipe, presumably the section from PHP to Matterhorn, and the remainder 48 inches in diameter. That’s about all we know on Blackfin, whose route shape does resemble the back of the feisty tuna variety for which it is named.

The second T-4 permit filed at the RRC in March is for Targa’s proposed Apex Pipeline (dashed light-pink-and-black line). At 563 miles in length, Apex is a much longer pipeline that originates in the Midland Basin and heads east toward Dallas before diving southeast to its final destination in Port Arthur. Again, we don’t know what interconnects Apex would offer, but it appears to start near the Midland Basin legs of the Matterhorn, Whistler (blue line), and Gulf Coast Express (GCX; gold line) pipelines in Midland County. At the other end, Apex crosses the Golden Pass Pipeline (orange line in inset map) before intersecting the Port Arthur Texas Connector (PAPTC; dashed green-and-black line) very near the planned Port Arthur LNG facility. Note that the partners behind Port Arthur LNG took an FID to proceed with construction of the LNG plant, with Phase 1 expected to startup in 2027.

The potential impact of Apex and Blackfin is interesting to us for a number of reasons. In our view, the pipelines, if built, represent the first significant new routes that will link LNG facilities east of Houston with Permian natural gas in a direct manner. While GCX and Whistler provide an essentially straight-shot to Cheniere’s Corpus Christi LNG plant — especially once the Agua Dulce Corpus Christi Pipeline (ADCC; dashed hot-pink-and-black line) comes online in 2024 — moving the Permian gas landing west of Houston farther east has been a challenge. Sure, there are various interstate pipelines that traverse the Gulf Coast from South Texas to Louisiana (the subject of our Miles of Texas series a few years back) and quite a few more intrastate pipelines that run along the entirety of the Texas Gulf Coast. However, those pipelines have come under increasing stress the last few years to not only supply the existing Texas LNG facilities at Corpus Christi and Freeport, but also to move excess Permian gas from Texas into Louisiana. This dynamic was on display quite vividly last summer when Freeport LNG suffered an outage and a flood of Texas gas tried to cross into Louisiana, pushing basis at the Houston Ship Channel (HSC) to previously unthinkable discounts. Perhaps the Freeport outage was a wake-up call for the next wave of LNG facilities planned near Beaumont and in southeastern Louisiana.

There are other interesting facets of these two projects. Apex, if built, would be the new greenfield gas pipeline leaving the Permian to not have a direct connection to Waha. Both GCX and Whistler have legs in the Midland Basin, but originate at the Waha Hub, where PHP also starts. While we don’t see the single starting point in Midland County as a showstopper, we have heard increasing rumblings around the nitrogen content of some gas fields in the Midland Basin, particularly as it relates to the buying preferences of LNG facilities. Perhaps integration with Waha will occur in another manner, and the T-4s are by no means final, or maybe Apex’s Midland Basin supplies will be blended with others of lower nitrogen content once in the Beaumont/Port Arthur area, where multiple LNG facilities could represent potential customers. When it comes to Blackfin, we were impressed by two elements. At first glance, we assumed the pipeline would simply link Matterhorn to the LNG terminals in southeastern Texas, but the PHP starting point caught us a little by surprise. While it’s certainly logical, there are times when intrastate pipeline integration does not follow such a path, so Blackfin’s proposed route certainly speaks to a potentially higher level of interconnectivity than we might have guessed, offering Permian supplies off both PHP and Matterhorn. The end point of Blackfin is also interesting, as it appears to directly connect with the CP Express, a potential interstate pipeline that could be built to supply Venture Global’s Calcasieu Pass 2 (CP2) LNG facility in southeastern Louisiana. Though CP Express and CP2 have yet to take FID, it appears they would be able to directly access Permian supplies through a PHP/Matterhorn-Blackfin route if things go as planned. There also appears to be another potentially appealing aspect of Blackfin, in that it may link various storage fields that could be used to balance gas supply for LNG terminals. Not only does Matterhorn have access to WhiteWater’s storage caverns at Waha, Blackfin appears to be close enough to access the Tres Palacios storage fields in Colorado County, as well as the storage facilities near Katy. As we understand it, combining two Permian supply options with three associated storage facilities may make Blackfin a real catch in the eyes of those sourcing natural gas for LNG export markets.

We wrap up today’s blog with a reminder that we don’t know if either of these projects will move forward or if our guesses around their interconnects are accurate. However, as avid observers of the Permian gas markets, we certainly see the need for both projects and wouldn’t be in the least surprised to see them advance. If they do, in a few years from now, Permian gas markets would be linked to the global LNG market in a way that only few could have envisioned just a few years back. That won’t be the end of the story for Permian gas pipelines, but it will mark the end of the persistent questions of just how Permian supplies can firmly move from West Texas to the doorstep of global LNG markets once and for all.