Whistler deliveries weigh on S. Texas basis; Permian gas floods Texas Gulf Coast

Gas delivered from Whistler Pipeline to the South Texas market is pressuring basis prices there as Permian Basin supply becomes increasingly ubiquitous along the Texas Gulf Coast.

Following the commercial startup of Whistler Pipeline July 1, cash basis at hubs near the mainline's terminus have moved sharply lower amid the influx of additional supply from West Texas.

At Agua Dulce, basis prices have averaged a nearly 8 cent discount to the Henry Hub over the past six weeks – down from a 1 cent discount in June. Over the same period, basis prices at Texas Eastern STX and Tennessee Zone 0, have fallen about 7 cents and 9 cents, respectively, S&P Global Platts data shows.

Compared to summer 2020, cash basis at all three hubs is also lower.

As an intrastate transmission line, the 450-mile, 42-inch diameter Whistler Pipeline from Waha to Agua Dulce, is not required to publicly report volumes flowing on its mainline, making it difficult to determine how much Permian Basin gas is being delivered to the South Texas market.

Earlier this month, though, the pipeline began reporting deliveries to connecting interstates, including Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline and Transcontinental Gas Pipe Line. Over the past week, combined deliveries have ramped up to over 300 MMcf/d, signaling a rise in commercial activity – likely including an increase in supply delivered to South Texas.

Gulf Coast gas market

Beyond the downward pressure on South Texas cash basis, Whistler Pipeline has had no other immediately discernable impacts on the South Texas gas market thus far.

Over the past six weeks, pipeline demand from Mexico has actually declined, despite lower basis prices in the South Texas market. Since early July, exports from Texas to Mexico have averaged about 5.65 Bcf/d, down from an estimated 5.9 Bcf/d in June.

Limited visibility on production in the Eagle Ford shale also shows no immediate impact from the additional Permian supply.

The growing pervasiveness of low-priced Permian gas on the Texas Gulf Coast – which includes gas delivered on Kinder Morgan's Gulf Coast Express and Permian Highway Pipelines – may ultimately increase gas-on-gas competition with Eagle Ford production. It may also increase competition with gas flowing southbound from the Haynesville or the Appalachian Basin.

The growing supply of Permian gas on the Texas Gulf Coast also raises questions about whether, and how, liquefaction facilities in the Lone Star State might source responsibly produced gas molecules for export.

Responsibly Sourced LNG

While a standard definition for responsibly sourced gas, or RSG, has yet to emerge from the natural gas industry, many global buyers are now expressing a preference for increasingly rigorous tracking methodologies.

In oil-heavy associated gas basins, like the Permian, some producers have begun phasing out high-bleed pneumatic devices that vent methane – ExxonMobil among them. Others have proposed remote methane tracking technologies. Increasingly, though, buyers are demanding more continuous ground-based tracking measures, like the ones proposed by Project Canary or Avitas. Some buyers have even expressed a preference for certified physical molecules, not just certificates.

Earlier this month, Chesapeake Energy was among the first US producers to make a sizeable down payment on its bet that most global buyers will prefer the actual physical molecules. With its $2.2 billion acquisition of Haynesville shale producer Vine Energy, Chesapeake is moving forward with RSG certification for physical production that could more credibly reach a Louisiana export terminal before mixing with other molecules – currently a tougher sell for more distant shale basins where production must traverse a labyrinth of pipelines before reaching an export terminal.

Assuming global buyers opt for the most stringent methane tracking and a more credibly-sourced physical RSG molecule, the growing ubiquity of Permian gas on the Texas Gulf Coast raises numerous questions about how Texas liquefaction terminals and producers may respond to the trend.