Unrealized Mexico demand spurs US gas north: Enlink

Natural gas flowing north from Oklahoma's prolific Scoop/Stack formation is increasingly competing with Permian gas moving to the upper midcontinent's demand hubs. The choke on Oklahoma gas flows stems, in part, from demand in Mexico not picking up as quickly as previously expected, said Enlink Midstream Partners.

"The anticipation was that Mexico's demand was going to increase significantly, but it has been slower to develop. We have seen (gas) move into Northern Natural Gas and other pipelines," said Cindy Jaggi, senior vice-president of Oklahoma at Enlink.

The thought was that Mexico's demand for gas was going to draw more gas from the oil-rich Permian region in Texas, but infrastructure delays have diverted the gas to other US destinations.

"Significant delays in construction of the connecting pipelines on the Mexican side of the border have led to relatively low utilization of cross-border pipeline capacity from western Texas," the US Energy Information Administration (EIA) said last week. "Some pipelines in Mexico have been delayed by more than a year from their original expected in-service dates, in part because of disputes contesting pipeline routes."

US natural gas exports to Mexico via pipeline reached a new record in May at 4.4 Bcf/d (125mn m³/d), according to the latest EIA data. The agency has predicted that figure will increase as June and July data are released, but the majority of those volumes currently come from the Eagle Ford shale in south Texas.

As a result, an influx of Permian gas flowing north has left Oklahoma gas even more log-jammed than it was previously thanks to a lack of processing and takeaway capacity.

Daily flow volumes into Northern Natural Gas pipeline at the demarcation point between the production and market zones in Kansas have consistently surpassed last year's volumes by three-fold over the past two months.

The Northern Natural Gas pipeline system is one of the principal ways that gas produced in Texas and Oklahoma moves north to Wisconsin and Minnesota.

Daily flow volumes through Northern Natural's demarcation point have averaged 1.06 Bcf/d from the beginning of June to 28 August this year. That compares with a rolling 30-day-average over the same period last year of 364.3mn cf/d, according to data from ABB Velocity Suite.

As Oklahoma gas gets squeezed within its traditional routes to demand centers in the north, prices face increasing pressure.

Prices at Oneok, Oklahoma, reached a near four-month low on 28 August at $1.54/mmBtu, expanding the price discount to prices at the Henry Hub to $1.40/mmBtu. The downward pressure on prices coincides with continued growth in production.

Gross gas production from the Anadarko basin, which underlies northwest Oklahoma and parts of Texas, breached 7 Bcf/d (198mn m³/d) in July, according to the latest US Energy Information Administration (EIA) data. Output should continue to climb into September, according to EIA estimates.

Midstream companies like Enlink are venturing to relieve the bottleneck in the near-term by building on existing infrastructure.

Enlink announced in June plans to move natural gas liquids (NGLs) processed at its Chisolm facility in central Oklahoma to the company's Cajun-Sibon pipeline in southeast Texas on Oneok Patners' Arbuckle pipeline.

Oneok plans to expand its midcontinent NGL gathering system by 100,000 b/d and its existing Sterling III pipeline by 60,000 b/d by the end of 2018.

Oneok's NGL gathered 150,000-200,000 b/d out of the Stack and Scoop plays as of June.

While bottleneck issues have resulted in production curbs in Bakken shale production, Jaggi does not see the same fate for Scoop/Stack producers.

"Right now, I would tell our producers to move forward with their plans," Jaggi said.