Natural Gas Weekly: May 2nd, 2024
Flows – Kinder Morgan (KMI) declared a force majeure last Friday (April 26) on a segment of the Natural Gas Pipeline Company of America (NGPL) system in West Texas following a natural gas release and subsequent fire. The unexpected outage is affecting flows from several pipelines and processing assets to the Waha hub.
The force majeure on NGPL specifically affects the Lockridge Lateral in Ward County, TX. The incident and outage has disrupted flows to 10 locations in West Texas until further notice, KMI told shippers. Although the fire has been extinguished, the impact on pipeline operations could be significant. East Daley can monitor deliveries from NGPL to Waha, and flows in the last week have declined from ~90 MMcf/d pre-outage to zero since the fire.
Based on the supply and demand dynamics in the Delaware Basin, we believe the outage could have an impact on Targa Resources’ (TRGP) Lucid South Carlsbad. The G&P system has two main routes to deliver volumes from Lea and Eddie counties in New Mexico to Pecos County, TX. TRGP’s Road Runner plant connects to Double E Pipeline and the Red Hill plant connects to NGPL and a final delivery point at Waha.
Looking at the interstate meter sample, flows on Northern Natural Gas and Transwestern Pipeline have remained relatively flat for the month of April. However, since the outage we have seen volumes increase on Double E with peaks from the Targa Road Runner processing interconnect and the XTO Cowboy compressor station. The same trend is seen on KMI’s El Paso Natural Gas system, which suggests flows are being rerouted to the Midcontinent via El Paso and to Waha via Double E.
Waha prices continue to be heavily discounted against Henry Hub and trade in negative territory as a result of maintenance work on other pipelines out of the Permian. If volumes are being rerouted via Double E to Waha, shippers could still encounter capacity constraints as maintenance events on El Paso, GCX and PHP continue to reduce outbound capacity by an average of 800 MMcf/d.
Infrastructure – DT Midstream (DTM) has completed new pipeline tie-ins to its integrated Blue Union-LEAP gathering system that should add value to the Haynesville pipeline assets.
DTM announced the new infrastructure on the company’s 1Q24 earnings call. In East Texas, DTM finished work on a connection from Blue Union to a third-party processing plant near Carthage. The interconnect, completed in mid-April, adds up to 0.5 Bcf/d of receipt capacity from East Texas.
Blue Union gathered 1.52 Bcf/d in 1Q24, well under the system’s capacity of 2.6 Bcf/d. The new connection will help fill that spare capacity, as well as expand DTM’s potential customer base in the Haynesville. However, East Daley does not expect those volumes show up immediately, given that Haynesville producers have been curtailing production in response to low prices. DTM expects producer activity to pick back up in 4Q24.
On the downstream side, LEAP has plugged into TC Energy’s (TRP) 1.5 Bcf/d Gillis Access project in Gillis, LA. Gillis Access is a header system designed to connect Haynesville gas to several LNG facilities along the Louisiana Gulf Coast. TRP is looking to take a final investment decision (FID) on a 1.4 Bcf/d extension to the Gillis Access system. DTM can supply up to 1.0 Bcf/d to this new header system via LEAP and has been flowing gas for several months, according to management.
Given that Gillis Access is an intrastate pipe, we can’t track these flows directly in samples. Our pipeline data suggests that LEAP volumes are down nearly 20% M-o-M, which EDA had previously attributed to production deferrals. However, the real cause of the sample decline is likely a combination of deferrals and increased intrastate volumes.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to report a net injection of 55 Bcf into working gas storage inventories for the week ending April 26. Inventories would rise to 2,480 Bcf, in line with our forecast in the monthly Macro Supply and Demand Forecast.
An injection of the size expected by the market would decrease the surplus to the 5-year average by 17 Bcf to 638 Bcf, marking the third week of this shoulder season with below-normal injections. The surplus to last year would come in at 432 Bcf.
Declining production has led to lower injection rates recently as low cash and forward prices prompt cuts in gas-focused basins. As reported by ICE, the GEFS weather model predicts the next two weeks will see gas-weighted degree days (GWDDs) below the 10-year normal. This means gas demand could be slightly lower than normal, which would flip the script on the relatively weak injections into storage of late, at least for the next two weeks. The downward pressure on price (and therefore production) will remain in place for the first two weeks of May. An expected increase in June power demand could be the only relief valve for any bulls left in the market.
Rigs – US rigs declined by 6 W-o-W to bring the total count to 567 for the April 21 week. The Anadarko is down 3 rigs, the DJ fell by 2, and the Permian and Marcellus+Utica each lost 1 rig. The Uinta added 1 rig. The rig losses in the Anadarko and DJ are most likely due to rig moves and should recover next week.
On the midstream side, Targa Resources (TRGP) gained 3 rigs total on its Permian systems. EnLink Midstream (ENLC) is down 2 rigs with losses on its Permian-Midland system. Western Midstream (WES) is down 1 rig on its Permian system.
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and 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.