Permian Natural Gas Prices React to Gulf Coast Express (GCX) Line-Pack Activity

aerial image of natural gas pipeline
Blog July 30, 2019

Mid-July brought big news for Kinder Morgan’s Gulf Coast Express (GCX). After Waha cash prices moved drastically over the span of July 8-15 (from -$0.01 to $1.19, for a gain of $1.20), it was clear that something changed in Permian basin dynamics. Market rumors of GCX undergoing line pack were confirmed by Kinder Morgan in its July 17, Q2 2019 earnings call. This GCX completion/fill activity is right in line with early partial service timing estimates provided by our Infrastructure team’s flight analysis in May and supported by our proprietary team’s infrared camera observations at the Waha Header System in Texas.

Map of Kinder Morgan's planned route for GCX pipeline
Image 1. Planned route for Kinder Morgan's recently completed 2 Bcf/d Gulf Coast Express, including the Midland Lateral portion that entered service in late 2018. The receipt area around the Waha Hub and the delivery around the Agua Dulce Hub are marked with a green triangle and blue square, respectively.

While Kinder Morgan declined to confirm any specific plans or volumes for early service on GCX during its call, it noted that GCX’s full-service capacity of 2 Bcf/d will be available as early as September 20, 7-10 days earlier than its previously announced date of October 1. They went on to note that in the interim between line fill and compression, they “will be delivering what gas we can deliver” through the pipeline to target markets at Agua Dulce hub in southern Texas.

Our infrared cameras monitoring activity at Energy Transfer Partners’ Waha Header System (WHS) compression complex show a distinct uptick in compression activity in July, with three of the 14 engines operating simultaneously for a short period in early July. The complex sustained higher-than-average levels of operation throughout July, with another peak in utilization occurring July 17.

Avg number of compressors operational per day at Waha Header System
Figure 1. The average number of compressor engines operational per day at the Waha Header System, normalized from Genscape proprietary infrared observation data. The green highlighted areas separate out the pre-GCX-line fill compression, the main GCX linepack and the system recovery/continuing deliveries. 

Generally, increases in compression at WHS loosely correlate to volumes being pushed through the downstream Trans-Pecos, Comanche Trail or Roadrunner pipelines, trending generally with exports across the Mexican border. All three pipes can flow material volumes to Mexico without active compression, but occasional activity at WHS is expected in order to keep the systems at an acceptable internal pressure. The strong early July ramp in compression utilization would usually indicate deliveries from WHS across the border, but no uptick in receipts was reported by Mexican pipelines. Instead, this compression likely indicates that increased demand for free-flowing gas (either for the Mexico pipes or GCX) exceeded field pressures provided by the pipelines and gathering systems which deliver gas to WHS.

Since they were placed into service in January 2017, Trans-Pecos and Comanche Trail have not transported large volumes and are likely not fully pressurized to their full capacity due to low delivery volumes. Consequently, it is reasonable to assume that WHS does not normally maintain full pressurization at the supply hub. The increased compression observed in early July is likely representative of the system packing gas at higher pressures prior to bringing its GCX interconnect online around July 10 and beginning to deliver gas at higher pressure to the new pipeline.

The increased consumption of Waha-area gas for WHS’ pre-GCX pressurization correlates with the change in general cash price dynamics (as reported by NGI) between Waha and Permian hubs in early July (see figure below). Waha cash traded similarly to or slightly under Permian cash for most of June, but on July 5 Waha overtook Permian and stayed above ever since. The relationship between these two price hubs shows a strength of demand specifically at Waha versus the larger Permian area, which supports heavy GCX line packing activities between July 11-15.

NGI Cash Price: Permian-Waha through June and July
Figure 2. NGI-reported prices for the Permian and Waha contracts through June and most of July. The second axis shows the basis between the two contracts, which remained positive in late June but switch to remain negative for most of July.

The increase in Waha hub cash price during the heavy GCX line-pack period, while infrared monitors showed smaller amounts of compression on WHS, is likely due to WHS carefully managing receipts of gas into its system. WHS has two sides to the system, one of which can receive gas at high pressure interconnects (which operate around 1000 PSI) and the other receiving gas from low pressure interconnects (which operate around 850 PSI). It’s likely that any gas received onto the low-pressure side of WHS during the event needed to be brought up to a higher delivery pressure before flowing through, which required some amounts of compression. WHS may also allow its internal pressures on either or both sides of the system to drop during deliveries, which explains the higher compression activity on July 17 as the system re-pressurizes.

The continuing (but lesser) pricing strength into the week of July 22 combined with the continuing (but lesser) compression activity on the Waha Header system very likely signals the beginning of uncompressed flow through GCX.

We will be monitoring the trends of both prices and compression activity going forward, though if volumes through GCX remain steady, it’s possible that further swings in price/compression activity will not materialize until GCX begins to test its in-line compressors. Our observations of compressor engine utilization are available as a dataset through the our Intrastate Monitoring Insight, which provides visibility into unreported intrastate pipeline systems in Texas, among other states. By using infrared imaging and patented electromagnetic field (EMF) monitors, our intrastate analysts can keep a close eye on both intrastate pipeline and storage dynamics.