Five years after the United States became a net exporter of natural gas on an annual basis, the country’s natural gas exports, both by pipeline and as liquefied natural gas (LNG), have grown by leaps and bounds.
The U.S. Energy Information Administration (EIA) has forecast that the United States will surpass Australia and Qatar to become the world’s top LNG exporter this year, with LNG exports continuing to lead the growth in U.S. natural gas exports and average 12.2 billion cubic feet per day (Bcf/d) in 2022. The United States currently ranks second in the world in natural gas exports, behind only Russia.
According to the EIA, annual U.S. LNG exports are set to increase by 2.4 Bcf/d in 2022 and 0.5 Bcf/d in 2023. The energy watchdog has forecast that natural gas exports by pipeline to Mexico and Canada will increase slightly, by 0.3 Bcf/d in 2022 and by 0.4 Bcf/d in 2023, thanks to more exports to Mexico.
Meanwhile, Russia’s war on Ukraine has forced Europe to turn to the U.S. as it tries to wean itself off Russian natural gas.
And now, the pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and nat. gas demand–coming just in time, given that limited takeaway capacity is expected to start being keenly felt in 2023, which could lead to negative pricing in the basin.
Last week, a consortium of oil and natural gas firms, namely WhiteWater Midstream LLC, EnLink Midstream (NYSE:ENLC), Devon Energy Corp. (NYSE:DVN) and MPLX LP (NYSE:MXLP) announced that they had reached a final investment decision (FID) to move forward with the construction of the Matterhorn Express Pipeline after having secured sufficient firm transportation agreements with shippers.
According to the press release, “The Matterhorn Express Pipeline has been designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply for the Matterhorn Express Pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX.”
Matterhorn is expected to be in service in the second half of 2024, pending regulatory approvals.
WhiteWater CEO Christer Rundlof touted the company’s partnership with the three pipeline companies in developing “incremental gas transportation out of the Permian Basin as production continues to grow in West Texas.” Rundlof says Matterhorn will provide “premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes.”
Matterhorn joins a growing list of pipeline projects designed to capture growing volumes of Permian supply to send to downstream markets.
Early this month, WhiteWater revealed plans to expand the Whistler Pipeline‘s capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations.
On Tuesday, a Kinder Morgan Inc. (NYSE:KMI) subsidiary launched an open season to gauge shipper interest in expanding the 2.0 Bcf/d Gulf Coast Express Pipeline (GCX).
Meanwhile, KMI has already completed a binding open season for the Permian Highway Pipeline (PHP), with a foundation shipper already in place for half of the planned 650 MMcf/d expansion capacity.
In its latest Drilling Productivity Report, the EIA said Permian output is set to grow by 169 MMcf/d from May to June, reaching 20 Bcf/d. The EIA has projected total U.S. dry natural gas production in 2022 to average 96.7 Bcf/d, 3.2 Bcf/d more than in 2021, and production to average 101.7 Bcf/d in 2023.
Source: Natural Gas Intelligence
Although the companies have not divulged the cost and revenue estimates of the Matterhorn, a project of that magnitude is likely to provide years of predictable cash flows to these producers–which, incidentally, are all high-dividend payers.
Oklahoma-based Devon, one of the Permian’s top producers, recently said it expects Permian production to reach nearly 600,000 boe/d in the second quarter. The new pipeline will help support the company as it increases its production in the Permian in the coming years. DVN stock currently yields (Fwd) 7.3% and has returned 54.3% year-to-date.
MPLX has several other expansion projects under construction. The company says it expects to finish construction on two processing plants this year, and recently reached a final investment decision to expand its Whistler Pipeline. MPLX stock yields a juicy 9.2% (Fwd), but the stock has only managed a 2.1% YTD return.
Meanwhile, EnLink’s cash flow has been rising thanks to higher commodity prices. The company has increased its capex range from $230 million-$$260 million up to $280 million-$310 million, which should drive growth in the near-term. ENLC stock yields (Fwd) 4.4% and has returned 43.6% YTD.
By Alex Kimani for Oilprice.com
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