Hoping to capitalize on booming production in the Permian Basin, NAmerico Energy Holdings LLC unveiled its plans for the Pecos Trail pipeline to move natural gas from West Texas to the Gulf Coast.
The company said April 3 that it formed Pecos Trail Pipeline Co. to construct a 468-mile intrastate gas system from West Texas to several endpoints in the Corpus Christi area. The 42-inch-diameter pipeline is designed to transport up to 1.85 Bcf/d into Texas intrastate pipelines ? Spectra Energy Corp's proposed Valley Crossing pipeline, the NET Mexico header and Cheniere Energy Inc.'s Corpus Christi LNG export project header system ? subject to shipper commitments. NAmerico anticipates a 2019 in-service date and said it will develop the project in partnership with the newly formed energy infrastructure investment fund Cresta Energy.
Jeff Welch, managing partner at NAmerico Partners LP, told S&P Global Market Intelligence that the pipeline makes sense because of market growth from pipeline exports to Mexico as well as LNG exports, despite competition from similar projects such as Kinder Morgan Inc.'s Gulf Coast Express pipeline that aim to take advantage of increasing activity in the Permian.
"We would be foolish if we didn't think that there were a number of companies looking at opportunities to develop assets," Welch said. The Permian "is getting a very significant portion of capital budgets from exploration and production companies in the area and quite a bit of attention from those not in the area that want to make an entry." He added, "Our natural gas pipeline solution reflects the fact that we need incremental capacity out of the basin starting as early as 2019."
Cresta Energy Managing Partner Chris Rozzell, who declined to provide a cost estimate, added that the pipeline project should be well-received by capital markets. "Equity capital markets are strong for projects that make sense. This project makes a lot of sense, and the risk return profile is very attractive," he said in an interview. "NAmerico has had a tremendous amount of shipper interest to date and is advancing that to the contracting phase."
Kinder Morgan responded that the Pecos Trail announcement validates the need for its 1.7-MMDth/d Gulf Coast Express pipeline, also scheduled to begin operating in 2019.
"The fact that other parties are looking at similar projects lends support to the fundamental need for our project," spokeswoman Melissa Ruiz said in an email. "We believe the interconnectivity and market optionality that we provide through integration with our existing pipeline and storage network provides Permian producers and other shippers a very attractive option."
RBN Energy LLC managing director Rick Smead said there should be room for both pipelines. "There's enough new supply from the Permian and enough incremental demand from Corpus Christi, Mexico and other possible South Texas LNG projects to justify the 3.5-Bcf/d combination of the Kinder Morgan and NAmerico projects," he said in an email. "Still, it takes shipper commitments to finance the pipeline."
Pecos Trail could also face a market that may not be big enough for all interested players. "You're talking about adding several Bcf/d of pipeline capacity in a region where ... each additional rig generates about one million cubic feet per day of incremental supply. So you look at the Permian right now, which has 300-something rigs, so even if you double the rig count, you're adding not a terribly enormous amount of gas supply," Katie Bays, an energy analyst at Height Securities LLC, said in an interview.
"So I think that's probably going to be the issue. ... One of the challenges here is that the size of the underserved market is not as large as what you could see in the Marcellus and the Utica."