Page 13 - GLNG Week 41

GLNG COMMENTARY GLNG

Options for Permian Basin gas

The region is set to experience a net decline in production this year and does

not need as much pipeline capacity as previously anticipated. Nevertheless,

it is exporting more gas to Mexico, and deliveries may continue to increase

PIPELINES & UNSURPRISINGLY, Permian Basin gas pro- some reprieve to Permian producers struggling
TRANSPORT duction – largely a by-product of drilling for with excess gas volumes.
oil in the region – took a severe hit earlier this Despite this, new takeaway capacity is still
WHAT: year after operators scrambled to scale back being added to the basin, allowing Permian gas
Gas producers in the activity and shut in output. Since May, though, to flow to the Gulf Coast, as well as across the
Permian Basin are some recovery has taken place as crude prices border to Mexico. And flows to Mexico have
sending more gas to stabilised and demand improved. Even so, these recently been boosted by the start-up of the 388-
Mexico, even though they gains are not expected to be enough to reverse km Villa de Reyes-Aguascalientes-Guadalajara
do not need as much the overall decline in US gas production for 2020 (VAG) pipeline.
pipeline capacity as compared with 2019. The VAG link, which has a capacity of 886mn
expected. The US Energy Information Administra- cubic feet (25.09 mcm) per day, is the final leg
tion (EIA) noted in its most recent Short-Term of the Waha-to-Guadalajara (Wahalajara) sys-
WHY: Energy Outlook that the Permian was on track tem from the Permian Basin. It runs from West
Permian gas production to experience larger gas production declines Texas to one of Mexico’s most economically
has recovered since May, than any other region of the country this year. vital and heavily industrialised regions – the
but not enough to reverse This is hardly surprising. Gas yields are linked area known as Bajío, which includes the city of
overall declines in US much more closely to the performance of oil San Luis Potosí, as well as Aguascalientes and
output. prices in this region than they are in other shale Guadalajara.
plays, and oil prices remain vulnerable to new
WHAT NEXT: waves of volatility. Mexico’s domestic gas market
Deliveries to Mexico may The EIA’s latest drilling productivity report The Wahalajara system is anticipated to help ease
continue to rise, thanks projects that Permian gas output will fall slightly volumes and stabilise prices at the Waha hub in
to plans for LNG export on a monthly basis in both October and Novem- West Texas. Consultancy RBN Energy estimates
terminals on the West ber, having climbed to an estimated 16.79bn that exports to Mexico from Waha will average
Coast. cubic feet (475.5mn cubic metres) in September. 600 mmcf (17 mcm) per day this year, but it also
On a nationwide level, the agency expects US says that current flows have already climbed to
gas production to begin rising again from the 800 mmcf (23 mcm) per day and are set to rise
second quarter of 2021, in response to higher further in the future.
prices for both oil and gas. Meanwhile, Waha will not be the only bene-
ficiary of these shifts. Mexico’s national power
Permian turnaround provider CFE has already signed a long-term
This volatility marks something of a turnaround take-or-pay agreement that will make it the pri-
for the Permian, which was previously grappling mary buyer of gas flowing through the Waha-
with a glut of gas that had resulted in a scramble lajara network, and it intends to use the fuel to
to build new pipeline capacity, as well as record supply its own thermal power plants (TPPs) and
levels of flaring and venting. Indeed, in some to supply major industrial consumers.
ways, this year’s downturn is seen as providing CFE stands to boost its earnings by doing so.

Week 41 16•October•2020 www. NEWSBASE .com P13