July 2022, Vol. 249, No. 7
Editor's Notebook
US Midstream and the Russia Factor
By Michael Reed, Editor-in-Chief
With much of the world shunning Russian energy as prices surge, the resulting systematic upheaval in dynamics has the potential to alter oil and gas supply trends and trade partnerships for years to come.
While the invasion of Ukraine has prompted a myriad of urgent questions around the globe, foremost among those being asked of America’s midstream sector is, “To what extent and how fast can U.S. natural gas free Europe from its reliance on Russian energy?”
The answer will depend, in large part, on America’s ability to expand natural gas production and liquid natural gas (LNG) exports, with the government having already taken some early steps to loosen restrictions around the latter.
But the breadth and pace of the response will be determined largely by the pipeline capacity available to transport natural gas from producing basins to the growing number of LNG liquefaction and export facilities along the U.S. Gulf Coast.
The U.S. already exports 17% of its natural gas, according to the Energy Information Administration (EIA), and it is projected that that total will increase to 20% this winter.
Unfortunately, gas output had not kept pace with the surge in export demand even before the war in Ukraine, so more production – particularly in the Permian – will need to flow to the Gulf Coast to help with the European demand.
The upshot of this is that all U.S. LNG export facilities will be running at capacity for the foreseeable future, and contracts necessary to support the construction of new facilities, over the next few years, will be increasingly attainable.
That should bode well for additional pipelines running to LNG export facilities in Texas and Louisiana, both of which are states that are relatively pipeline friendly.
On the pipeline front, Texas LNG Brownsville and Enbridge have agreed to expand the Valley Crossing Pipeline (VCP) to deliver 720 MMcf/d (20 MMcm/d) of natural gas to Texas LNG’s export facility, under a 20-year deal.
VCP is a 160-mile (257-km), 42- and 48-inch pipeline that begins at the Agua Dulce gas hub, near Corpus Christi, and extends to the Port of Brownsville at the Mexico border. A 10-mile (16-km) lateral is being built to extend the pipeline to the Texas LNG’s facility, along with the addition of compression facilities on the existing pipeline.
Also, MPLX said it is moving forward with an expansion of its Permian Basin natural gas pipeline, which will boost capacity of the 450-mile (726-km), 42-inch Whistler pipeline by 500 MMcf/d (14 MMcm/d) to 2.5 MMcf/d (71 Mcm/d). Service is expected in the third quarter of 2023.
MPLX said the 85-mile (137-km), 36-inch lateral, which connects to the Midland Basin, became a reality upon the recent signing of secured contracts for capacity.
Of course, there are production areas in the U.S. to consider other than the Permian, but like the Marcellus Shale, most of those are located across state lines from coastal export facilities, leaving them bottlenecked by permitting issues.
That leaves – in addition to the Permian – the Haynesville of northeast Texas and northern Louisiana as the only other area that is well-positioned to deliver natural gas to LNG facilities along the Gulf Coast, via new intrastate pipelines.
As you likely know, Haynesville natural gas production had started to decline in 2012 because of its relatively higher production cost, but it reached record highs in late 2021, remaining relatively strong in early 2022, on expanded pipeline takeaway capacity and higher demand.
Among the recent projects contributing to the added Haynesville takeaway was
Midcoast Energy’s CJ Express pipeline, which entered service in April 2021, and Enterprise Products Partners’ Gillis Lateral pipeline, which came online in December. The related expansion of Enterprise’s Acadian Haynesville Extension also entered service in December.
In response to demand, Energy Transfer started construction of the 1.65-Bcf/d (47-MMcm/d) Gulf Run gas pipeline from the Louisiana Haynesville to the Gulf Coast. That project is now under construction in Texas and expected to be completed by the end of the year.
As pipeline operators look toward intrastate pipelines as the fastest path to expansion, two distinct corridors are developing for egress from the Haynesville.
Pipelines from the Louisiana side are aimed at LNG facilities on the Louisiana coast, while proposed projects from the Texas Haynesville target Texas LNG exports, along with increasing Permian volumes.
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