Dirty Little Secrets is East Daley’s annual market report summarizing trends we expect to shape the U.S. midstream energy sector during the year ahead. We publish the report each December, highlighting our analysis of macro themes that give subscribers an edge in the energy market. We also hold a webinar with our analysts that cover the details of the annual report.
Dirty Little Secrets
Dirty Little Secrets Preview: The Bottom is in for Crude Transport Rates
During the last major crude infrastructure buildout from 2019-2021, four new pipelines added just under 4 MMb/d of capacity to US Gulf Coast destinations (Houston and
Corpus Christi). East Daley expects these pipes to finally start filling up, effectively putting an end to rock-bottom rates.
Competition during the last buildout was fierce. Rates on these new oil pipelines were offered at a significant haircut to legacy system rates, and the average Permian transport rate fell as a result. The pandemic only made things worse: rig counts plummeted and utilization rates on Permian crude pipes dropped as low as mid-40%. Some operators started to offer deeply discounted incentive rates to attract the marginal barrel, putting further pressure on rates across the basin.
Fast-forward to today, and Midstream is in a vastly different environment. Permian crude production now outpaces pre-pandemic levels, driven by more productive operators supplying more with fewer rigs. Thanks to this recovery, pipeline operators can breathe a sigh of relief. Utilization rates have almost doubled from their lows and currently sit at 75%, according to East Daley’s Crude Hub Model (see chart).
Dirty Little Secrets Preview: Sky's the Limit for LNG Exports
The outlook for LNG exports has never been brighter. By the end of this decade, US liquefaction capacity could expand to nearly 30 Bcf/d, East Daley reveals in 2023 Dirty Little Secrets, fueling long-term demand growth for natural gas.
LNG markets entered 2022 with momentum as global economies exited Covid lockdowns. Then Russia attacked Ukraine on February 24, pouring gasoline on the fire in markets. Our latest forecast reflects the rapid commercial progress made in 2022 by LNG projects based mainly on the Gulf Coast, including several new entrants to the field.
In May, East Daley published a Midstream Navigator highlighting the rapid surge in natural gas demand via LNG exports (log in to see our May 10 Navigator, “Gas Market Eyes New LNG Project Wave). Total US LNG exports hit multiple record highs in early 2022, peaking at 12.1 Bcf/d in March before an outage at the Freeport facility hobbled export capacity. Demand from Europe has driven exports as utilities there sought alternatives to Russian gas. European Union countries took in 74% (8.4 Bcf/d) of the LNG sent overseas in March and April, according to Energy Information Administration (EIA) data. This compares to Europe’s average 34% market share for US LNG exports in 2021. The war in Ukraine has sent a strong signal that Russia cannot be depended upon for energy resources, making US LNG an attractive substitute.