Haynesville shale could face Permian problem
Growing volumes of natural gas may soon outstrip pipeline capacity, forcing discounts to prices
The Haynesville shale may soon know what it’s like to be the Permian Basin.
The natural gas-rich shale play, which straddles the Texas-Louisiana border, is producing at record levels. But the growing volumes of natural gas may soon outstrip pipeline capacity, according to analysts, forcing Haynesville producers to discount their prices, much as producers have done in the Permian.
The Haynesville shale is churning out a record 10.5 billion cubic feet of natural gas, surpassing the 2011 peak of more than 10.4 billion cubic feet a day, according to the U.S. Energy Department. That output will jump to 10.75 billion cubic feet a day in May, the Energy Department forecast.
The surge is driven by moderately higher natural gas prices, increased demand from LNG export projects along the Gulf Coast and a booming petrochemical industry, which uses natural gas as a feedstock.
Rising production in the Haynesville, as well as the Marcellus shale play in the Appalachia region, could lead to a strain on the capacity of pipelines to the Gulf Coast sooner than originally thought, according to research and analysis firm RS Energy Group. That may affect prices for Haynesville gas on the Gulf Coast.
The Haynesville and the Marcellus are two of the nation’s most active shale gas plays. The average number of active daily drilling rigs operating in the Marcellus jumped nearly 30 per
cent in the second half of last year, to 54 from 42 rigs. The Haynesville shale play wasn’t far behind, with the average number of active daily rigs climbing to 51 from 43 during the same period.
“The play’s gas production could rise more quickly than anticipated, and increased activity in the Marcellus will provide additional pressure as US Northeast gas tries to make its way to the Gulf Coast,” according to RS Energy analysts.
Haynesville producers have grown accustomed to discounting their gas prices about 10 to 15 cents below a common benchmark for gas prices, the Henry Hub, a distribution center in Louisiana. But if this high level of rig activity continues, pipeline capacity could quickly fill up, increasing the chances that Haynesville producers would have to discount their prices even more, according to RS Energy.
Those pricing pressures could start as soon as this summer and last about two years, an RS Energy spokesperson said.
Some LNG projects plan to get their natural gas from the Haynesville region as well as from the Permian Basin. While the first wave of LNG projects could rely on reversing the flow of existing pipelines to get natural gas, the next generation of LNG projects is being developed in conjunction with new pipelines.
The Houston company Tellurian is developing the Driftwood LNG project south of Lake Charles, La. Tellurian is building a pipeline from the Permian Basin and a pipeline from the Haynesville to supply Driftwood, which is expected to begin operations in 2023.
The Golden Pass LNG project in Sabine Pass, a joint venture of Exxon Mobil and Qatar Petroleum, plans to connect to the Gulf Run Pipeline, which would run from the Haynesville, Marcellus, Utica and Barnett shale plays, according to the pipeline’s developer, Enable Midstream Partners of Oklahoma City. Enable is aiming to bring the pipeline into service by late 2022, the company said recent press release.