Permian Basin increases pipeline capacity
Once limited by a lack of pipeline capacity, the Permian Basin has seen a series of recent completions that have increased shipments to the Gulf Coast and Mexico.
This has helped reduce the steep discount at which natural gas is traded at the Waha Hub in Texas.
Two completed projects in Texas, as well as two completed projects in Mexico, all help improve connectivity between neighboring markets and the Permian Basin, an area in which production has exceeded the available takeout capacity in recent years, according to a June 8 report from the U.S. Energy Information Administration.
Recently completed projects include:
- Kinder Morgan’s 2.1 billion cubic feet per day (Bcf / d) Permian Highway Pipeline (PHP), which entered service in January. PHP delivers natural gas from the Waha Hub in Katy, Texas, located near the Gulf Coast of Texas, with additional connections to Mexico. PHP joins Kinder Morgan’s 2.0 Bcf / d Gulf Coast Express, which entered service in September 2019 and delivers natural gas from the Waha region to Agua Dulce, TX.
- Whitewater / MPLX’s Agua Blanca expansion project, which went into operation at the end of January. The Agua Blanca expansion project connects to nearly 20 natural gas processing sites in the Delaware Basin and can move 1.8 Bcf / d of natural gas to the Waha hub. The project will also connect to the Whistler pipeline, which is expected to be completed in the third quarter of 2021, and would move an additional 2.0 Bcf / d of natural gas from the Permian Basin to the Texas Gulf Coast.
- Carso Energy’s 0.5 Bcf / d Samalayuca – Sásabe pipeline, which recorded its first commercial natural gas flows at the end of January. The pipeline, located in northwestern Mexico, provides a more direct route for natural gas from the Permian Basin to serve this regional market.
- Fermaca’s 0.9 Bcf / d Villa de Reyes-Aguascalientes-Guadalajara (VAG) pipeline, which began commercial operations in October 2020. The pipeline, located in central Mexico, is the last segment of the Wahalajara system that connects the Waha Hub to Guadalajara and other population centers in west-central Mexico. With its completion, natural gas flows on the Trans-Pecos pipeline, the first section of the Wahalajara network connecting the Waha hub to Mexico’s pipeline network, increased from approximately 0.3 Bcf / d to 0.6 Bcf / d. / d.
The additional offloading capacity of these recently completed projects helped U.S. pipeline exports to Mexico increase 0.55 Bcf / d (9.9% increase) to 5.9 Bcf / d from March 2020 to March 2021, according to the latest data available from Monthly Natural Gas. IHS Markit estimates indicate that high export volumes continued into April and May, averaging around 6.1 Bcf / d, a 31% increase from last April and May, according to Energy Information Administration in a June 8 report.
The increased take-out capacity also helped drive up the price of natural gas at the Waha Hub, reducing its price difference (also called base) at the Henry Hub. In recent years, the limited take-out capacity in the Permian Basin has resulted in a wide base compared to the Henry Hub, as Waha prices have consistently stayed at $ 1 per million British thermal units (MMBtu) or below. of the Henry Hub Prize. However, from the end of October 2020, the base of the Waha-Henry Hub started to shrink significantly, and the price at the Waha Hub was on average only $ 0.22 / MMBtu lower than the price. from the Henry Hub from March to May 2021. The last time the base was so narrow for an extended period was in the spring of 2020, following a sharp drop in the price of crude oil and a simultaneous drop in production of natural gas, which increased the price at the Waha Hub.
July natural gas was unchanged from June 9 at $ 3.13 per 1,000 cubic feet.