Yesterday, BTU Analytics published our latest Northeast Gas Outlook report with an in-depth analysis of how growing Permian natural gas volumes could alter Western natural gas pipeline flows and ultimately impact natural gas price realizations for producers from the Rockies to the Marcellus. But gas flow patterns aren’t just changing in the West and Northeast, significant changes are afoot in the Gulf as well.
The graphic below from our Henry Hub Outlook, also published yesterday, highlights the change in Gulf coast basis markets for May 2017 compared to the summer of 2016.
Growing demand along the Gulf Coast from industrial projects and exports have driven up Houston Ship Channel basis relative to Henry Hub from a discount of $0.02 in the summer of 2017 to a premium of $0.11 for May 2017. While Houston Ship Channel and Henry Hub prices are both much stronger year over year, pricing at Carthage and Perryville have seen discounts to Henry Hub widen to $0.10 back.
Coinciding with the changes in basis, natural gas pipelines flows across Louisiana have already begun to shift to serve rising demand, replace production declines, and provide an outlet for rising Marcellus and Utica production in Appalachia.
We see in the chart that inflows from Appalachia have grown while inflows from Carthage and Southwest LA have declined, most significantly in Southwest Louisiana, due to rising demand in Texas. Outflows from Louisiana to the Southeast have also declined as the Transco null point rambles south.
While inflows and outflows for the Louisiana market are undergoing change, flows inside the Louisiana market are experiencing change as well. The above chart shows aggregated flows on the interstate pipelines connecting the Perryville natural gas market in north Louisiana with the Henry Hub market in south Louisiana. Historically, gas flowed from the south to the north to serve Midwest and Appalachian markets, but in 2014 flows on average dropped to zero and since 2015 flows have reversed with more gas moving from Perryville back towards Henry Hub. That trend has accelerated in 2017 with May setting a new record for southbound volumes at 2.7 Bcf/d and a daily record being set at nearly 3.0 Bcf/d.
As volumes continue to grow from the Permian (See: Where is all that Permian Gas?), the West reels with limited demand (See: Trouble in the West), and Marcellus infrastructure projects come to fruition, expect more gas to continue to flow into Louisiana and migrate its way to the Gulf Coast.