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Discounted Permian gas sees potential lift from Wahalajara startup


El Encino-Laguna pipeline flows ramp up to 40 MMcf/d

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Wahalajara could offer outlet for 250 MMcf/d upon completion

Denver — Heavily discounted Permian Basin gas could soon access downstream markets in Mexico, following the recent startup of incremental gas deliveries to Fermaca's Wahalajara pipeline system.

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On Monday, updated electronic bulletin board flow data showed that a new downstream segment on Wahalajara, the El Encino - La Laguna pipeline, began receiving about 40 MMcf/d on April 17.

In Tuesday trading, cash prices at Waha traded as high at 65 cents/MMBtu, up about 25 cents from weekend flow dates. Forwards prices for May jumped 32 cents on the day, rising to a $2.47/MMBtu discount to benchmark Henry Hub gas on the improving outlook for Permian supply.

The startup of incremental demand on Wahalajara bodes well for Permian producers since all of the system's supply comes entirely from the West Texas play.

Over the past month, about 185 MMcf/d of Permian gas production has flowed westbound on Roadrunner Gas Transmission Pipeline where it meets the border-crossing Tarahumara Pipeline -- Wahalajara's northern-most segment.

After flowing southbound on Tarahumara, an interconnection to El Encino - La Laguna offers access to additional demand in north-central Mexico, and to uncompleted Wahalajara segments and interconnections farther downstream.

Upon its completion, the Wahalajara system could ultimately provide an outlet for an incremental 250 MMcf/d of Permian gas production, according to S&P Global Platts Analytics.


On Tuesday, flow data provided by Fermaca offered no clear indication on the current southbound reach of Permian gas production. It was also unclear whether recent deliveries to El Encino - La Laguna reflect line-packing or actual demand on the pipeline.

According to Platts Analytics, downstream demand on the Wahalajara system is likely to see its biggest boost upon completion of the Guadalajara interconnect in central Mexico. Recent construction status reports show that interconnection entering service sometime during third-quarter 2019.

Another potential outlet for Permian gas production could come from a connection to Mexico's national Sistrangas pipeline grid. The 70 MMcf/d interconnect at El Encino in Chihuahua state is being jointly developed by Fermaca and Cenagas, Mexico's natural gas system operator.

The interconnect is expected to enter service sometime this year, although Sistrangas has yet to identify a new meter for the project.


The startup of incremental demand on Wahalajara gives Permian Basin gas producers some cause for optimism following an extended period of negative pricing from late March to mid-April.

On April 3, cash prices at Waha settled at a record-low negative-$5.79/MMBtu as gas production reached the ceiling on available takeaway capacity, which was exacerbated by a series of maintenances.

Following the much-anticipated, full ramp-up in demand on Wahalajara, the next major pipeline expansion isn't scheduled to enter service until early autumn.

With the startup of Kinder Morgan's 2 Bcf/d Gulf Coast Express pipeline in October 2019, and an anticipated in-service date of late 2020 for the midstream developer's 2.1 Bcf/d Permian Highway Pipeline, Platts Analytics anticipates a longer-term resolution for Permian producer's gas transportation constraints, at least though the early 2020s.

-- J. Robinson,

-- John Hilfiker,

-- Veda Chowdhury,

-- Daniel Rodriguez,

-- Edited by Christopher Newkumet,