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2018. Expanding Beyond Lower 48: Mexico and Canada Are Markets That the Industry Keeps Pursuing
12/24/2018
A robust production growth of this year, which mainly concentrated in Permian, kept even more producers seeking additional takeaway options. Today we recall some of the major export-bound midstream projects of 2018: completed, announced or still being constructed at the moment. We also highlight the leading companies that make exports happen.
How Important Is Mexico as a Destination for Permian and Delaware Natural Gas?
In 2018 ONEOK and Energy Transfer have significantly added design capacity to their three major Mexican export pipelines:
- Roadrunner,
- Comanche Trail,
- and Trans-Pecos.
Additional 3.1 Bcfd of capacity should both help U.S. producers route the excessive by-product gas from Permian and Delaware and to meet the expected demand growth in the Mexican market.
Currently, though, despite the fact that Mexico has room for U.S. gas (does not really develop its extraction leaning in favor of crude oil business), the demand remains weak. The actual flows through the above lines are still limited to 0.3 Bcfd. Experts give various reasons for that while the overall picture of the Mexican market is not transparent enough. It may be infrastructure capacity technical constraints. Additionally, industry red tape and growing political resistance from the side of the newly elected leftist Mexican president Andrés Manuel López Obrador may be other reasons for the halted exports growth.
Meanwhile, U.S. producers still need to handle the excessive by-product gas issue. If not Mexico, the destination for the natural gas can be petrochemical facilities of the Texas Gulf Coast area. That option will emerge once these two following projects both stretching from Waha to Agua Dulce are completed:
- Gulf Coast Express (GCX) - 1.98 Bcfd - scheduled to enter service in late 2019
- Whistler Pipeline - 2 Bcfd - to be in-service by 4Q of 2020.
The former project has been advanced by Kinder Morgan Inc., DCP Midstream LP and Targa Resources Corp. The latter has NextEra Energy Pipeline Holdings LLC, WhiteWater Midstream LLC, and Marathon Petroleum’s MPLX LP collaborating on it.
Will Mexican market embrace the U.S. natural gas remains to be seen. Capacity to transport it will still be ultimately built.
Canadian natural Gas: Westward-Bound. How Will Canada LNG (Kitmat) Project Affect U.S. Natural Gas Market
Another long-term game-changer for the U.S. market may be the 1.8 Bcfd Kitmat (LNG Canada) project. It aims at both delivering West Canadian natural gas to the coast and starting the first Canadian LNG exports facility. The first phase consists of 420 mile Coastal GasLink pipeline construction. It should come into service by 2023. The second phase includes the gas liquefaction and storage plant with two liquefaction trains to be built.
In the long run experts believe Kitmat exports will primarily help Canadian producers escape the U.S. market with its low gas prices and improve its margins significantly. The project is thought to create no risks for the U..S. market itself. In fact the opposite can happen. Marcellus and Utica natural gas may find its way to Asia via the newly constructed Canadian West Coast facility.
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Look At The Future Of American And Appalachian Gas Production
The crux of the matter is rather simple: productivity gains of local energy operators have been stable not only because they are drilling better acreage, but also because players finally realized capital efficiency gains. And even if some new obstacles impede Appalachia's growth at the same rate as the Permian or Haynesville, it does not detract from the value of the Marcellus and Utica basins. The Appalachians will still be the top producers at a very competitive pace as long as commercial inventory exists. After all, as long as there is commercial inventory, somebody will have to drill.
Mexico Pacific LNG: A New Export Era Anchored by Permian Gas
Natural gas from the U.S. Permian Basin is set to be the primary source for Mexico's Pacific's Saguaro Energía LNG facility. Located in Puerto Libertad, Sonora, the Saguaro Energía LNG export facility will feature three processing trains. The site is primed for potential expansion with plans for three additional trains of similar capacity. Its strategic Pacific Coast location offers a 55% shorter shipping route to Asia, providing significant savings and reduced carbon emissions.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.