Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on December 31, 2013 at 6:41

Les, what approximate percentage of export capacity at Sabine Pass and Cameron will be sourced from Haynesville Shale production?

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Permalink Reply by Les Bamburg on December 31, 2013 at 7:01

Skip, unfortunately at this time there is not enough information to make a good estimate.  The limited information indicates feed gas for those two projects will likely be sourced from gas pipelines that access the Perryville (LA), South Texas and Marcellus/Utica Shale areas.  Perryville looks to be a primary supply location which includes gas production from North Louisiana, East Texas and Southeast Oklahoma.

Eventually the liquefaction customers from the two projects will probably release more information regarding the specific sources of their feed gas.  For example Cabot recently contracted with Sumitomo for 350,000 MMBtu/D of Marcellus Shale gas for supply the Cove Point LNG export project.  

     

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Permalink Reply by Skip Peel - Mineral Consultant on December 31, 2013 at 7:08

Would Haynesville production have any advantage related to lower transportation cost due to proximity?

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Permalink Reply by Les Bamburg on December 31, 2013 at 7:19

Skip, it could have a small advantage over East Texas and Southeast Oklahoma.  Any potential advantage over South Texas and the Northeast (Marcellus/Utica) may be offset by the additional cost of gas transportation to Perryville.

Buyers quest for the lowest cost gas will be a combination of pipeline transportation and price for the gas in the supply region versus NYMEX.   

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Permalink Reply by Skip Peel - Mineral Consultant on December 31, 2013 at 7:30

Any advantage would be welcome for Haynesville production in NW LA and E TX.  Hopefully that advantage will extend to additional new demand represented by other industrial users in the Lower Mississippi River Corridor and the central Gulf coast.

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Permalink Reply by jlgm on January 12, 2014 at 11:20

Who would have thunk that going into this development?

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Permalink Reply by jim weyland on December 31, 2013 at 8:03

skip, it's all about pl capacity and product price. in the specific example of nw la product, it can get to the coast 2 ways: 1) the stuff actually flows north to south or 2) by displacement, i.e. s la gas that would otherwise flow north is instead directed to the coastal liquification plants and further north, haynesville is substituted for that gas.

as an extreme example, many years ago, i bought rockies overthrust gas put it through trailblazer pl into ngpl, there it was "backhauled" on ngpl to henry. at the end of the day, one is agnostic as where the stuff comes from, it's all about pl capacity and price. as to where supply will be physically sourced to the the gulf coast plants, my guess is that the answer is all of the supply sources previously discussed in this thread. 

as an aside, i used to work for dominion's e&p entity. i "know" there were open thanks given to god in their e-suite in richmond because of the emergence of the marcellus play. for two reasons; first, they were able to sell 100s of thousands acres of marcellus rights from acreage held by ancient shallow production leases (the leases were/are grassroots to granite) for $billions. and perhaps more importantly, second, it would give them a chance to use cove point for something other than a dust magnet or paperweight. that is, they, too, could jump on the liquification band wagon. and, actually, finally, begin to consistently flow stuff through there. it was one of the lng import terminals built in the '70s. since then, it's mostly laid fallow.

imo, cove point exports will be the most profitable in the entire lower 48 because of access to "captive" appalachian gas. there, if you hold transport, buying gas is pretty much akin to shooting fish in a barrel. and, there will always be european customers for cove point product. any way they can lessen their reliance upon gazprom they will. 

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Permalink Reply by Skip Peel - Mineral Consultant on December 31, 2013 at 9:04

Thanks,jim.  Can you be more specific as to price and pl capacity for Haynesville gas compared to competing play areas

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Permalink Reply by jim weyland on December 31, 2013 at 9:55

skip, the good news is there are several good published sources of accurate price information by location/pipeline. ( Inside FERC, Natural Gas Intelligence, Natural Gas Week and Gas Daily) Note: IF is the "bible" for monthly gas, GD is the same for dailies. the bad news is that they don't give it away for free. 

no longer a productive member of society, i don't get the publications anymore. so, i use the WSJ "cash" prices for dailies. there, they publish NGI's dailies for HH, PEPL, TGPL Zn3 and Zn6, Opal hub, Marcellus and Haynesville (i presume, one of the 2 P-ville hubs).

if anyone on the board has/gets IF or GD (they also print monthlies) it would be most helpful. Pipeline capacities can be ferreted out with a bit of work. all interstate pls have sites that give flow data, by location. they used to be open sources. before i retired they began to require login and pw. why? my guess is as good as yours. maybe, homeland security reasons. everyone since 9/11 has worried about sabotage. pl maps that they used to fling at you, now, you need to be known to get a copy.

  for gas flow today, per the WSJ and per NGI, HH is 4.403, Haynesville is 4.29. the approximate $0.10 delta tells me there's capacity at the Haynesville price point. ten cents ain't no thing.

on the other hand, for today, marcellus is 3.59. remember, it's much closer to the premium winter markets of the ne. this tells me there's more gas there than takeaway. another example, again, for today, TGPL Zn6 (proxy for NYC) is 6.05. this is saying there's more demand than ability to get it there, in other words, a transportation scarcity premium. for the weekend, i'd expect Zn6 to be even higher because of the arctic air heading their way and cold weather notwithstanding there's a good chance marcellus will be even lower due to lack of industrial load on weekends.  monday's wsj will tell the tale, they'll be showing the sat through mon "daily" price for each location

i hope the above is responsive/helpful.

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Permalink Reply by Skip Peel - Mineral Consultant on December 31, 2013 at 10:19

Thanks,  What I'm wondering about is the competitive advantages/disadvantages of Haynesville production for the new industrial end users in the Haynesville backyard.  The list of new plants and existing plant expansions using nat gas as feed stock and/or power is impressive.  Industrial demand should bolster Haynesville development in the coming years unless there is a supply with better F&D costs. 

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Permalink Reply by jim weyland on December 31, 2013 at 11:26

you know the expression "money talks and ______ walks". there are ways to get future prices that are real.

in other words, they're willing to execute, they'll vote with their money. it's easy and transparent with respect to the commodity at Henry, it's the bid/ask prices for each month out on the nymex.

of course, this doesn't answer the question you want answered: what's the future price "curve" for/at haynesville?

well, that answer is out there. and it's a good bit harder to get. while there's an electronic trading platform called ICE (intercontinental exchange). unfortunately, they don't have a perryville or haynesville posting

but for informational purposes, on ice, one can find bids/asks for both paper and physical for almost every point you can think of. now, that doesn't mean that at all times there will be people willing to  buy or sell at all points. remember, just like the nymex, the prices there are real, they are voting with their money. if one hits send on ice one has just bought or sold on the firmest of firm terms to a counterpart that will perform and who will expect and get the same from you. the link is to their energy product slate:

https://www.theice.com/productguide/Search.shtml?productGuide=&...

note: even on a time delay view only basis, ICE gets hundreds of $/month.

there's another source where your counterpart will be voting with his money.

as with ice, if you do the deal it's done on the firmest of firm terms. at the large banks they have "desks" where one can find someone willing to buy/sell swaps any just about any location for any period of time.

note: it's a very over the counter business, in other words, it's very, very  opaque. but one should be able to do a five to ten year swap at perryville. of course, they won't even talk to you unless you're BBB+ or better.

note: the guys you'd be dealing with didn't go to the iowa school of applied business studies. 

all that having been said, with respect to supply, the closer you are to the market, the better, all thing being equal. so, i'd say the future looks good for nw la given all of the projected gc new market requirements.

the only potential dark cloud on the horizon is, imo, impending the tsunami of lls product about to flood the gulf coast. where the refineries can't run it nor where it cannot be exported by law. this tsunami is why kinder is voting with its $1B to buy Jones act complying tankers to ship lls type crude to the east coast refineries. My concern is that we need to let exports of us crude happen or to build more jones act tankers. remember, all of our drilling today is about the liquids.

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Permalink Reply by dbob on December 31, 2013 at 11:27

Skip,

I think you should look beyond F&D costs when considering plants in the area.  More specifically, the overall large increase in US gas supply (at attractive pricing) drives the development of new infrastructure.  the combination of existing infrastructure, regulatory environment (air permits, water, disposal) and business environment (taxes, less union issues) and workforce I think ultimately is what is leading to those facilities being located in this region. 

In terms of a Haynesville advantage, I think the only real advantage comes in when prices climb and there is a lot of demand.  The infrastructure that is in place to handle the gas, plus the ability to rapidly bring some pretty big wells online (rather than a bunch of smaller wells) is the only possible advantage I see.  You might also include the fact that it is near pipeline quality coming out of the formation as an advantage. 

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