With minimal local demand growth and no new pipeline capacity until the end of 2022, the Haynesville area prices are vulnerable to production growing too fast.
Columbia Gulf Mainline (CGML) basis prices declined rapidly after January, coinciding with a surge in Henry Hub prices. Haynesville production has been rising, and only one major project is under development. Even though producers are enjoying the highest gas prices (ignoring a few high daily cash prices) in nearly 13 years, local production may outpace additional pipeline capacity, further restricting the area and putting pressure on basis.
CGML basis's spot-month contract has deteriorated from around -20c in January to around -45c as of mid-May. The price decrease isn't limited to the prompt month. Since late February, the Summer 2022 strip and the Summer 2023 strips have widened by 17c and 7c, respectively.
Some of those basis changes are due to fuel costs caused by rising Henry Hub prices. Still, the major go-forward risk is growing production with an insufficient new takeaway capacity to match it.
Production Growth: Haynesville dry gas production climbed to an all-time high of around 10.8 Bcf/d on May 9 (Bloomberg).
More growth is likely. There has been an increase in gas-directed drilling rigs in the Haynesville basin, which may eventually lead to increases in production. Baker Hughes says the number of drilling rigs in the Haynesville area is the highest since April 2012 and up 39% year-to-date, at around 68 (week ending May 13). Haynesville's production is expected to rise by 239 MMcf/d from May to June, according to the EIA.
Public Haynesville operators expect continued growth this year. Comstock reaffirmed its 2022 production guidance of 4-5% growth and increased its 2022 capital spending guidance by 16% to a new range of $875-$925 million. Meanwhile, Tellurian announced that it would increase its output from 100 MMcf/d to 200 MMcf/d by the end of the year.
If production expands, where will that gas go? Adequate takeaway capacity becomes critical.
Infrastructure may enable production growth
Many analysts have said that Haynesville gas production will see the most growth in 2023 because of additions to pipeline capacity.
Recent: Takeaway Capacity
The Enterprise Products Partners' Gillis Lateral pipeline and the associated expansion of the Acadian Haynesville Extension entered service in December 2021. Prior to that project, Enbridge Midcoast Energy's CJ Express pipeline entered service in April 2021. These projects added 1.3 Bcf/d of takeaway capacity in the Haynesville area.
Upcoming: New Pipeline Capacity
Gulf Run Pipeline. Energy Transfer said on 02/16/2022 that work on the 1.65 Bcf/d Gulf Run pipeline, which would transport gas from Louisiana's Haynesville to the Gulf Coast, had begun. It is expected to be finished by the end of 2022 and is supported by a 20-year agreement with the $10 billion Golden Pass LNG export plant being built in Texas by Exxon Mobil and Qatar Energy.
Expansion of the Acadian system. Enterprise Products Partners is increasing the capacity of its Acadian pipeline system in Haynesville by 0.4 Bcf/d, with completion due in 2Q2023.
Louisiana Xpress Project. TC Energy is expanding capacity on Columbia Gulf Pipeline from Perryville to Rayne, Louisiana. The installation of compressors will allow around 493 MMcf/d more gas to flow on Columbia Gulf (from the Appalachian basin to markets in Louisiana), with Cheniere's new Sabine Pass Train 6 as the eventual buyer. AEGIS notes that this capacity is as likely to flow more Appalachia gas as it is Haynesville gas, as Columbia Gulf stretches up to the TCO system in the Northeast, and the pipe has undergone numerous expansion projects (also with the “Xpress” moniker) in the last several years.