Natural Gas Weekly: August 8th, 2024
Infrastructure – A Whitewater-backed investor group has reached a final investment decision (FID) on Blackcomb Pipeline, a new 42-inch natural gas line out of the Permian Basin. The new blockbuster project raises the ante on a five-way competition to follow Matterhorn Express Pipeline as the next pipeline expansion for growing Permian gas production.
Whitewater announced the Blackcomb partnership last Wednesday (July 31) between the Whistler Pipeline JV (50.6% Whitewater Midstream, 30.4% MPLX, and 19% Enbridge (ENB)) and Targa Resources (TRGP). The Whistler partners own 70.0% of the Blackcomb project, TRGP has a 17.5% stake, and MPLX owns 12.5%, on top of its stake in the Whistler JV.
Blackcomb is designed to transport up to 2.5 Bcf/d over ~365 miles from the Permian to the Agua Dulce hub in South Texas. The pipeline will source gas from processing plants in the Midland and connections to the Agua Blanca Pipeline in the Delaware Basin. Whitewater expects the new pipeline will start operations in 2H26.
Along with Targa, Blackcomb is backed by firm transportation agreements with investment-grade producers including Devon Energy (DVN), Diamondback Energy (FANG) and Marathon Petroleum (MPC). The Blackcomb route appears to follow a similar right-of-way as Whistler Pipeline; Whitewater has expertise in this route, which raises our confidence in the proposed in-service date.
Blackcomb would follow the 2.5 Bcf/d Matterhorn Express Pipeline, now targeted online in 4Q24, to meet near-term production growth from the Permian. In the Permian Supply & Demand Forecast, East Daley anticipates Blackcomb will not arrive in time to avoid the earliest of gas egress constraints that begin to show up in winter 2025. We expect Blackcomb will have initial capacity of 2 Bcf/d, with the opportunity to add 500 MMcf/d of compression later. Whitewater also operates Whistler Pipeline and has managed that system’s capacity in the same incremental manner.
Blackcomb is the fifth proposed pipeline project out of the Permian Basin, but the first to reach FID after Matterhorn Express Pipeline. Other proposals include Energy Transfer’s (ET) Warrior, TRGP’s Apex, and Moss Lake’s DeLa Express Pipeline. Kinder Morgan (KMI) is also seeking customers for a compression expansion of Gulf Coast Express (GCX). East Daley believes that Targa’s participation in Blackcomb likely snuffs out hope for the Apex project.
In the Permian Supply & Demand Forecast, EDA forecasts supply trends and tracks future midstream expansions, from processing plants and egress pipelines like Blackcomb, that influence forward prices in the Permian and across the Gulf Coast (see figure). Reach out for more information on our Permian Basin forecast.
Infrastructure – Partners ExxonMobil (XOM) and Qatar Energy have pushed back the start date for Golden Pass LNG to late 2025 following the bankruptcy of lead project contractor Zachry Holdings, Bloomberg reported last Friday. East Daley assumes a January ’26 start for Golden Pass Train 1 in our latest monthly gas forecasts.
Golden Pass LNG will start operations six months later than previously planned as a result of work stoppages from the Zachry bankruptcy XOM CFO Kathy Mikells told Bloomberg. Zachry filed for Chapter 11 protection in May ’24 seeking a “structured exit†from Golden Pass LNG as the lead engineering, procurement and construction (EPC) contractor.
The partners and Zachry reached a settlement agreement in July that removes Zachry and allows Chiyoda to take over as the EPC lead at Golden Pass. As of the latest work stoppage, Train 1 at Golden Pass LNG was 83% complete, according to a progress report filed with the Federal Energy Regulatory Commission (FERC). Train 2 and Train 3 were 46% and 31% complete, respectively. As part of the original EPC joint venture, Chiyoda was only responsible for the commissioning phase of Train 1.
East Daley had already pushed back the expected start date of the Texas LNG facility after the two-month bankruptcy proceeding halted momentum. In the latest monthly Macro Supply & Demand Forecast, we now expect Golden Pass Train 1 to begin service in January 2026. EDA’s new regional gas models also reflect the Golden Pass delay.
Although Golden Pass will start later, the gas demand outlook remains strong for LNG exports in 2025. The figure above shows EDA’s LNG project stack in Energy Data Studio. Several other LNG projects plan to start in the next year, including Cheniere Energy’s (LNG) Corpus Christi Phase III project and Venture Global’s Plaquemines LNG
Flows – Waha prices have been under heavy pressure recently following maintenance work on the El Paso Natural Gas Pipeline (EPNG) system. Waha prices fell to a recent low of -$1.10/MMBtu last Friday (August 2) and traded for -$0.25 early this week.
EPNG has been conducting maintenance work that will limit flows to a total of 31 locations in New Mexico, Texas and Arizona in July and August. Maintenance at locations like Cornudas HPW, Cornudas LPW, Caprock North, Guadlupe and North Mainline have a higher impact on the Waha hub as it impacts three of the four corridors out of the Permian (westbound, northbound, eastbound). Recent maintenance has removed ~1.5 Bcf/d of egress capacity from EPNG, causing supply to back up in the basin. Waha gas has traded at an average $2.42/MMBtu discount to the Henry Hub for the first week of August (see figure).
Even with the flexibility in the Permian to move gas through both interstate and intrastate pipelines, we are seeing a tight egress market from Waha into the Houston Ship Channel area. Waha basis is expected to remain heavily discounted through 4Q24 until the Matterhorn pipeline starts, adding 2.5 Bcf/d of capacity to the Waha-HSC corridor.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to report a 27 Bcf net injection into working gas for the week ending August 2. Inventories would rise to 3,276 Bcf, in line with our outlook in the monthly Macro Supply & Demand Forecast.
The storage surplus to the 5-year average would fall by 11 Bcf to 430 Bcf based on market estimates, while the surplus to 2023 would increase by 2 Bcf to 254 Bcf. Weekly injections have trailed the 5-year average pace in 14 of the 17 weeks of the 2024 injection season so far. Moreover, the market is on a 12-week run where injection rates have trailed the 5-year average (dating to the May 3 week).
Despite the erosion in the storage surplus, natural gas prices remain stubbornly low. The August ’24 Henry Hub contract went off the board last week at a dismal $1.91/MMBtu, while the new September ’24 prompt month traded to a low of $1.88 on Monday (August 6). Production in the first week of August remains close to 101 Bcf/d but may not stay that high for the duration of the month, as a handful of producers have alluded to production cuts similar to those enacted previously in March.
Rigs – US rigs held steady W-o-W with the count holding at 558 for the July 27 week. The DJ, Marcellus+Utica, Permian and Uinta basins each added 1 rig W-o-W. The Bakken lost 3 rigs and the Marcellus–NE PA is down 1 rig on the week.
On the midstream side, Targa Resources (TRGP) is up 4 rigs total with new activity on its Permian, Eagle Ford and Bakken systems. ONEOK (OKE) lost 3 rigs between its Anadarko and Bakken systems. MPLX gained 5 rigs total on its Permian, Anadarko, Marcellus+Utica and Permian systems.
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and by gathering and processing (G&P) system to better understand midstream impacts. We allocate rigs and monitor flows through 150+ public and privately owned G&P systems in every North American basin. Reach out for more information on the Midstream Activity Tracker.