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Constraints to Gulf Coast natural gas market to drive widening basis discounts


Southbound corridors from Carthage, Perryville becoming constrained

Estimated 1.5 Bcf/d capacity remains from Midwest, Northeast, Permian

Summer-2020 Gulf Coast demand growth anchored by LNG liquefaction

New York — Emerging pipeline constraints into the Louisiana and East Texas gas markets could see steep basis discounts appearing at neighboring and even more distant US pricing locations next summer as competition among shippers for access to the premium demand region continues to rise.

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In recent trading, forwards prices at nearby hubs like Carthage and Columbia Gulf Mainline are averaging 10 cents and 24 cents/MMBtu behind Henry Hub for the June, July and August contracts.

Farther afield in the Midwest and the Northeast – which continue to supply increasing volumes of gas to the Gulf Coast market – summer 2020 forwards prices are at even steeper discounts to the benchmark.

Chicago is now priced 22 cents below Henry Hub gas, while Dominion South is at a 42 cent/MMBtu basis discount for the mid-summer 2020 contracts, S&P Global Platts M2MS data shows.

As next summer approaches and gas transmission corridors to the Gulf Coast become increasingly congested, those price spreads could see further widening, according S&P Global Platts Analytics.


By summer 2020, pipelines moving gas from the Midwest and the Northeast to premium Gulf Coast locations could run at utilization rates approaching 90% to 100%.

While flow data along much of the North-to-South corridor appears to suggest ample capacity to reach the Gulf Coast, bottlenecks actually exist closer to locations like Henry Hub and Houston Ship Channel.

For Midwest and Northeast gas flowing to the Gulf Coast on key interstate corridors – ANR Pipeline, Columbia Gulf Transmission, Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline, Texas Eastern Transmission, Texas Gas Transmission, Trunkline Gas and Transcontinental Gas Pipe Line – congestion south of Carthage in West Louisiana and south of Perryville in the state's northeast will pose serious constraints to gas moving southbound next summer.

According to Platts Analytics, approximately 500 MMcf/d of available capacity remains between Carthage and Houston Ship Channel on Gulf South Pipeline, NPGL, Tennessee and Texas Eastern, based on last summer's 85% utilization factor.

From Perryville to Henry Hub, a combined 83% utilization rate last summer on ANR Pipeline, Columbia Gulf, Tennessee, Texas Gas and Trunkline left about 1 Bcf/d of available capacity along the other key southbound corridor.

Including the eastbound corridor from the Permian Basin, Platts Analytics estimates that last summer, roughly 1.5 Bcf/d of spare capacity to Houston Ship Channel and Henry Hub remained from West Texas, Carthage and Perryville.


Compared to summer 2019, demand along the East Texas and Louisiana Gulf Coasts is forecast to rise about 4 Bcf/d, anchored principally by the growth in LNG liquefaction activity.

At Freeport LNG, the startup of commercial service at Train 2 and Train 3 is expected by February and June, respectively. At Cameron LNG, Train 2 and Train 3 are scheduled to enter service by April and August. Along with a higher anticipated utilization rate at Cheniere Energy's Sabine Pass, LNG producers will likely require an incremental 3.5 Bcf/d of gas this summer compared to last.

Additional factors weighing on the region's available supply include stronger demand from Gulf Coast power generators and industry, as well an anticipated decline in Gulf Coast and offshore gas production.

Compared to last summer, though, more supply should be delivered to the East Texas and Louisiana Gulf Coast region from Kinder Morgan's 2 Bcf/d Gulf Coast Express, which entered service last September.

Taken together, Platts Analytics estimates that the Houston Ship Channel and Henry Hub markets will likely require about 1 to 1.5 Bcf/d more supply than the region's pipeline grid can physically absorb.

While the market implications of this anticipated supply shortfall are already apparent, it's possible that existing basis discounts at Carthage, Perryville and other locations farther afield could still widen.