US gas prices hovering below $3 per million Btu as of late may be just one factor preventing LNG from reaching North American import terminals. Competition for space on the US gas pipeline network is also expected to deter suppliers from sending cargoes to the US, particularly as gas supply mounts over the coming months in the US Gulf of Mexico region near Louisiana and Texas shale gas plays.
In response, pipeline companies are scrambling to build new infrastructure in the Gulf of Mexico region to accommodate gas production from emerging shale plays in the area. At least seven pipeline projects and expansions in proposal stages could eventually move gas from the shale basins along some of the same paths that regasified LNG from Gulf terminals usually take -- to the US Midwest, near cities such as Chicago and Detroit, or the US East Coast, where supplies can access Philadelphia, New York and Boston.
Most of the new pipeline proposals are targeting the Perryville hub in Louisiana, one route from which regasified LNG can travel to the Ohio Valley, the Northeast and into the Southeast in Florida and Georgia. "Ultimately, LNG is just another form of supply, and any LNG that enters the market has to compete for that same pipeline space. LNG will likely go to other markets because they will have a better price, but if you push LNG into a market that's capacity-constrained, you will put downward pressure on prices in the region," noted Justin Carlson, a gas analyst for Bentek Energy.
Bentek's Andrew Bradford says that early signs of pipeline congestion in the Gulf region already surfaced last year. Older, less efficient pipelines ended up transporting a lot of gas last winter as a result of production growth. "We saw Haynesville and Fayetteville shale production area data come in at all-time highs in the last few weeks. We think that will continue to see pipelines pretty full this winter," he added.
The seriousness of the pipeline capacity crunch in the US Gulf hinges on the pace of production and LNG import growth in coming years and on how quickly new pipeline infrastructure goes into service.
"If you look at the amount of pipelines they're proposing to expand, it's almost 9 Bcf/d of pipeline expansions. That's an awful lot of capacity moving gas out of the Haynesville area. There is a timing issue, and it all comes down to how fast Haynesville can grow," Carlson said.
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