ANALYSIS: CJ Express opens new Gulf Coast access, higher gas prices to Haynesville producers

Startup of Midcoast Energy’s CJ Express pipeline expansion project this week should lift gas prices in the Haynesville this summer with improved producer access from the wellhead to the Gulf Coast market.

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The expansion adds over 100 miles of 36-inch greenfield pipeline at multiple locations with additional compression. It also improves gathering capabilities in the Shelby Trough area of the Texas Haynesville and increases capacity on Midcoast Energy’s East Texas Clarity Pipeline system to 1 Bcf/d, according to information available on the company’s website.

In a press release dated March 30, Midcoast said that it has also executed firm transportation and natural gas purchase and sales agreements with the Golden Pass LNG Terminal. The agreements become effective upon completion of an extension to the Clarity Pipeline in the Beaumont, Texas area to a new interconnect with Golden Pass Pipeline, the company said.

Midcoast Energy’s final investment decision on the CJ Express project was announced in late February 2020 and was anchored by definitive, long-term shipper agreements.

Haynesville

Incremental capacity from the Haynesville to the US Gulf Coast market will come as a welcome relief to East Texas gas producers, battered by discounted prices at Carthage – the basin’s nearest delivery point.

Last summer, prices at Carthage averaged just $1.77/MMBtu from April to October, trending nearly 10 cents below benchmark Henry Hub gas, S&P Global Platts data shows.

Historically, gas prices at Carthage experience their widest discounts to Henry Hub during the shoulder seasons. During those periods, when Haynesville gas is forced to compete with low-priced production shipped from Appalachia on interstate pipelines running adjacent to, and also servicing the Haynesville.

In October 2019 and again in 2020, gas prices at Carthage traded at discounts ranging from 60 cents to more than 90 cents. Additional capacity offered by CJ Express’ expanded Clarity Pipeline system could help to keep Haynesville gas prices higher during those low-demand periods.

Market outlook

Through first quarter 2021, cash prices at Carthage have traded mostly in the mid-$2s/MMBtu, or about a 10- to 12-cent discount to Henry Hub. Forwards markets are anticipating similar discounts for Carthage this summer. From April to October, the hub is priced at an average 11 cent discount to Henry – actually lower compared with last summer’s basis price average of minus 10 cents/MMBtu.

Additional pipeline capacity offered on CJ Express could lift Carthage gas prices this summer. Recent production gains in the Haynesville, though, and a bullish balance-of-year growth forecast could pose downside risk.

In March, gas production from the Texas-Louisiana shale basin edged up to its highest on record, averaging nearly 12.8 Bcf/d. With an estimated 48 rigs currently in operation, the pace of drilling activity in the Haynesville now exceeds its pre-pandemic, first-quarter 2020 level, data published March 31 by Enverus shows.

According to S&P Global Platts Analytics, Haynesville gas production could grow by more than 15% from current levels by fourth quarter 2021. It’s also the mostly likely candidate to lead North America’s shale basins in overall volume growth this year, outperforming even the Permian.