Will Gulf Coast LNG Demand Match the Supply of Gas?
In LNG Exports - Where Is All That Gas Coming From?, we discussed what could be considered the “last mile problem” for an LNG terminal, which is getting the gas from the interstate pipeline system to the terminal itself. But all of that demand for additional gas in one region has also created a demand for the commodity and related pipeline capacity from producing regions, the two biggest of which are the Marcellus/Utica and Permian basins. Today, we look at how the expansion of the interstate pipeline system from these basins has been and will be impacted by this new demand center.
If you are interested in the pipelines being built to provide this gas, the producers who are rushing to get their gas to the Gulf, or the LNG terminals that will need the gas supply when they come on, the key issue is “timing”: when will incremental supply reach the Gulf Coast and when will the new LNG projects be ready to take feed gas? If the supply builds too quickly, regional basis prices will suffer, and if the supply is late, LNG purchasers may have a price surprise. As can be seen below, the answer to this puzzle in the short term is the additional supply for the LNG projects scheduled to come online in 2019 may be running about one year behind. The long term answer to this question will be determined by the number of LNG facilities and Permian pipelines that are actually built, and if all of the LNG terminals are built, there is tremendous opportunity for pipeline companies to build more pipelines into the region.
A Quick Look Back
The switch from LNG import to LNG export along the Gulf began with the application filed by Sabine Pass in early 2011. Below, we show how the demand for gas has grown and is expected to continue growing as the first, second, and maybe even third wave of projects have, or are projected to, come online.
Connecting to Supply
A key benefit to locating an LNG facility in the Gulf Coast region is the region’s ready supply of gas. As Marcellus/Utica began displacing gas coming from the Gulf to the Northeast, the gas could simply remain in the Gulf region and be absorbed by the limited LNG facilities that were coming online, namely Sabine Pass trains 1 through 4. However, well before those LNG facilities went into service, producers seeking to de-risk their assets secured firm transport from the Marcellus to the Gulf Coast area. A number of projects were proposed to meet this growing demand, and some of them, as shown below, have already gone into service. Note that the volumes listed below reflect only long distance projects designed to reach back to the supply basins and not intra-regional projects such as Creole Trail Expansion or Cameron Interstate, which were designed to debottleneck local systems or directly serve the LNG facilities.
The first wave of LNG was mainly for gas supplied from the Marcellus region. The next obvious source is the gas produced as associated gas in the Permian basin. As we discussed in Permian Pipeline Project Update - Movers, Shakers and Others, there are a number of pipelines proposed to carry gas from the Permian to the Gulf. We are tracking six such projects, which would bring a total of 12 Bcf of gas to the region. However, our current view is that only two to three of those will get built, for a total of an additional 6 Bcf of supply.
Looking at the Balance
By layering the added demand from the LNG projects and the historic and projected increases in pipeline capacity for the long distance pipelines headed to the Gulf region, one can see where the mismatches in supply and demand may occur.
Right now, both the short-term and long-term demand are outpacing the supply, but the mid-term from 2020 to 2023 could be a period of severely depressed prices if all of the new Permian pipelines actually get built. If the third wave of LNG facilities beginning in 2024 actually get built however, there could be a tremendous opportunity for additional pipeline capacity in that long-term time frame.
Insights Coming Soon
- Review of market share of Asset Management Agreements (AMAs)
- Launch of our Cost Data