Sempra and Boardwalk's Proposed Permian-to-Katy Gas Pipeline -- RBN Energy -- August 31, 2017

Active rigs:

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Active Rigs	54	33	76	194	185

RBN Energy: Sempra and Boardwalk's proposed Permian-to-Katy gas pipeline.

In the short term, Permian natural gas will be dealing with the aftermath of Harvey and what it might do to associated gas production from crude oil wells being curtailed due to refinery downtime and storage capacity issues.  But that will soon be behind us, and at that point Permian natural gas production will resume its steep upward trajectory. Just a few months ago, the gas market was still sharpening pencils on potential gas takeaway constraints in West Texas, but congestion in the Waha gas market now appears as likely as another winning season for Alabama football. Where will this tide of natural gas end up? Until a few days ago, the Agua Dulce Hub in South Texas was Number 1 on the list, but a new project has thrown the Katy Hub into the mix as a potential destination. Today we analyze an interesting approach to relieving Permian natural gas market constraints.

One thing we’ve yet to discuss here in the blogosphere is the potential impact of Permian natural gas arriving at the Agua Dulce Hub in 2020. Will these projects flip Agua Dulce from being short natural gas (as was our outlook in the “Miles of Texas” Drill Down series), to being long natural gas? If so, will excess gas need to flow northeast along the Texas Gulf Coast to the Katy and Houston Ship Channel (HSC) markets? Once that gas arrives in the Katy/HSC markets, will it find enough local demand? Or will it need to continue moving east into the Southeast Texas and Southwest Louisiana markets? Finally, what happens if Permian supply skips over Agua Dulce altogether and heads directly to Katy/HSC on a new greenfield pipeline? That last question is the subject for today as we look at the dynamics driving Sempra LNG & Midstream and Boardwalk Pipeline Partners’ Permian-to-Katy (P2K) pipeline open season. We will explore the other questions in a future bog series on the shifting Gulf Coast supply and demand dynamics.

Sempra and Boardwalk announced a non-binding open season for the Permian-to-Katy (P2K) pipeline on August 14, 2017. The proposed 42-inch-diameter pipeline would originate at the Waha Hub in the Permian and terminate at the Katy Hub just west of Houston. Just before reaching Katy, one leg of the pipeline would head south and interconnect with various interstate pipelines before terminating at Gulf South Pipeline Co.’s Coastal Bend Header (which will supply gas to Freeport LNG) in Wharton and Brazoria counties.

The P2K pipeline would require an estimated 24 months to build and cover 475 miles from Waha to Katy, approximately 10% longer than the distance from Waha to Agua Dulce. The project could provide capacity by December 2019 and would have an estimated transport rate of $0.45 to $0.55/MMBtu.

Jobs: first time unemployment claims -- pending. Forecast is for an increase of 3,000 over previous week.

• prior: 234,000; revised: 235,000
• consensus forecast: 237,000
• new claims, actual: 236,000 -- up just 1,000
• 4-week moving average: down to 236,750 from 238,000 (revised up slightly)