East Daley Analytics – Dissecting the Energy Value Chain
Case Studies

Revealing the Secrets of the Katy and Agua Dulce Markets

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With a large number of intrastate pipelines that have minimal, if any, official metering data associated with them, the South Texas oil and natural gas landscape—particularly the Eagle Ford, Permian, and Houston Ship Channel regions—presents significant challenges for producers, investors, and traders alike. The infamous opacity of the South Texas oil and natural gas landscape makes it difficult to fully unravel the complex energy supply chain.

When a key player in the natural gas and LNG market sought visibility in South Texas to optimize their operations for the next decade, they turned to East Daley for consulting support.

Opening the Black Box: The Challenges of Navigating South Texas’s Unmetered Pipelines

In certain regions of South and East Texas, so-called 'ghost pipelines' complicate predicting natural gas supply and demand. This lack of clarity gets in the way of players in the natural gas market being able to seize on new opportunities, avoid or mitigate potential risks, and confidently make decisions.

Understanding which pipelines are on the rise, offering the most promising opportunities, and which ones might be facing production downturns or declining demand is crucial for shifting towards strategies that offer optimal rewards with minimal risk. However, when you're unable to directly ascertain the flow volumes or capacities of these critical pipelines, navigating the situation becomes more challenging.

Our client came to us for assistance in exploring the black box of South Texas natural gas supply and demand so they could select the best markets to target in the coming years. In particular, our client was trying to make a confident, data-driven decision between two natural gas markets—Katy and the Agua Dulce hub. Making the right decision would reduce their downside risk and increase their profitability over the next five to ten years.

Without visibility into the markets served by these unmetered pipelines and the intricate nature of the energy supply chain in South Texas, however, our client faced challenges including:

  • Difficulty predicting supply and demand due to lack of pipeline flow data, potentially leading to inefficient allocation of resources and missed opportunities.
  • Potential financial losses from investing in less profitable or riskier pipelines and markets.
  • Losing their competitive advantage due to a lack of expert insights into opaque and complex energy markets.

Building Strategic Insights Into South Texas Pipeline Dynamics

The world of natural gas and LNG markets is incredibly complicated. To really understand what the price of energy resources will be in San Antonio or Houston, for example, you must understand Louisiana’s LNG demand. Having only minimal metering data available throughout South Texas makes understanding the markets that much more difficult—which is where East Daley’s consulting expertise came in.

Since the majority of the pipelines at Katy are intrastate pipelines, to fully understand this market, East Daley focused on known variables first to later solve for the unknown variables—starting with facts and measurable insights, such as inbound flows and capacities on the Permian Highway or Gulf Coast Express pipelines, or the upcoming Matterhorn (2024) or Blackfin (2027) pipelines, and filling in the blanks by making data-driven extrapolations.

East Daley’s market expertise solved for a supply and demand balance on both sides of the Texas intrastate issue and circled back to better understand generally how Texas intrastate pipelines serve downstream markets.

To build a forecast that would help our client overcome the challenges we were facing, we employed:

  • Custom-built models trained on historical pipeline flows and prices across various regions to build accurate forecasts.
  • Detailed market analysis focusing on the Eagle Ford basin, Houston Ship Channel, and surrounding areas, along with forecasting that incorporated upcoming infrastructure projects and market balancers.
  • Focused, comparative evaluations of the Katy and Agua Dulce hubs to determine the most favorable market for the client's investments based on risk and profitability assessments.

Crafting the Forecast for Agua Dulce and Katy

Our analytics used Eagle Ford supply delivered to Agua Dulce and Mexico from South Texas along with other known supply sources from interstate pipeline inbound flows to extrapolate supply and demand data for both Agua Dulce and Katy.

Using historical data, we could develop five-year and ten-year forecasts that took upcoming developments and potential market balancers into consideration to form reasonable expectations about the movements of East Texas inbound supply and LNG demand.

After looking into our historical production and demand models and taking new developments such as the in-progress Blackfin and Matterhorn pipelines into consideration, we presented our client with a comprehensive report that included:

  • How we defined the bounds of the Katy and Agua Dulce hubs
  • Our methodology for separating the Agua Dulce market from Katy and Houston Ship Channel
  • Natural gas price history and forward curve prices for Katy, Houston Ship Channel, and NGPL TXOK
  • Five-year forecasts for fundamental drivers at Katy and Houston Ship Channel, including evaluations of the potential risk Matterhorn could pose to Katy and other potential market balancers
  • A breakdown of our methodology for determining Agua Dulce demand and supply
  • Assumptions behind our Eagle Ford Residue Gas Transportation Model
  • Inbound supply on interstate pipelines from Katy
  • LNG exports from Agua Dulce
  • Forecasts for exports to Mexico through 2030
  • Kinder Morgan asset footprints for South Texas

Helping Our Client Shape the Energy Landscape of Tomorrow

Massive new investments in infrastructure are leading to an exciting boom period in the natural gas market. For example, while new South Louisiana infrastructure projects coming online in the coming years are expected to impact flows from East Texas, the upcoming Matterhorn pipeline is also expected to significantly shift supply dynamics in the Katy and Houston Ship Channel markets.

With so many moving pieces now in play, natural gas market analytics must embrace complexity to deliver accurate forecasts and help producers, investors, and traders take the reins of shaping the future of the energy market.

Our forecasts identified recommended opportunities as well as potential warning signs for unfavorable shifts in price for both pipelines and showed the client that in the near term, Agua Dulce was a safer investment for their unique circumstances, while also anticipating that later on throughout the ten-year forecast, the Katy pipeline would eventually become more favorable for investment as new pipelines came online and demand dynamics surrounding East Texas evolved.

With the help of our detailed and rigorous forecasts, our client could confidently decide which of the two markets to focus their energy and efforts in over the coming years. By unraveling the complexities of the South Texas natural gas supply and demand, the client gained the visibility they will need in the coming years to make strategic decisions, mitigate risks, and seize new opportunities to ensure sustainability and growth over the next decade:

  • Improved Visibility and Decision-Making
  • Strategic Market Investment Guidance
  • Comprehensive Forecasting for Future Planning

Take the Reins of the Energy Market With East Daley Consulting

When you need help untangling the complex web of oil and gas markets across North America, East Daley Analytics provides the wisdom you need to make the most of all the data at your fingertips. Our consulting services leverage integrated data modeling and system analysis to not only provide you with all the data you need but also help you make sense of it all as well so you can make the best possible decisions.

From due diligence and debt investment to market studies and strategic analyses, we put the full story of the energy market at your disposal with custom, easy-to-digest presentations so you and your fellow stakeholders can get ahead of the competition.

To get started, talk to our energy market consultants today.

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