There is an onslaught of surplus natural gas supply bearing down on the Henry Hub in South Louisiana. More than 60 natural gas pipeline projects are in the process of reversing the continent's gas flows to move gas out of the Northeast, and much of that production will be moved to the Gulf Coast.
That gas will slam into supplies moving in to Louisiana from the west, sourced from “wet” gas and associated gas from crude oil plays in TX, NM, OK and ND. Demand from gas fired power generation, industrial gas use and LNG exports will eventually absorb the incremental supply, but not for a few years. We’ve seen this movie before, in the 2008-10 timeframe when Rockies gas battled it out with new shale supplies from the Haynesville and Fayetteville. But this time there is a big difference in the economics of production. Today we summarize the conclusions from a new deep-dive report from RBN Energy and BTU Analytics.
We wrapped up that analysis by examining the only market that could possibly absorb all of that gas in (South) Eastbound and Down: The Southeast—Emerging Demand Epicenter of US Gas Industry.
But we did not talk about when that demand might materialize, what will happen in the interim, and most importantly – what kind of competition that Northeast gas might see from prolific gas producing plays to the west of Louisiana. It turns out that these issues have the potential to wreak more havoc in the natural gas market than we’ve seen in years.
The Battle is Coming to Henry
The point of all of those earlier blogs was that the entire natural gas market in North America is being upended, with scores of proposed pipeline projects being developed to reverse the continent’s gas flows.
The ultimate goal for most of these projects is to transport (or displace) surplus Marcellus/Utica production to the Gulf Coast to meet the anticipated demand growth from gas fired power generation, new industrial plants, and of course, most of the U.S.’s impending LNG exports. That onslaught of gas supply is aimed directly at the Henry Hub, price reference point for essentially all natural gas in North America. This is not the first time in recent memory that the Henry Hub has been inundated with natural gas surpluses.Much more at the linked site. For energy bulls it may not be a pretty sight or a pretty site. But, wow, talk about opportunities.
A price point:
Today the opponents are Northeast gas versus gas from Texas, New Mexico, Oklahoma and North Dakota. And the productivity arms race has changed the battle plan. Many producers in Northeast Pennsylvania can profitably produce gas at prices less than $2.50/MMbtu.
North Dakota Bakken