Unless production rises, next year’s supply-demand balance should be at least as good as this year’s.
Haynesville and East Texas gas basis has moved higher – to a smaller discount to Henry Hub – this summer. In the prompt month (not cash) Columbia Gulf Mainline basis traded near a -10c discount in May, June, and July. It had been around -20c to -25c during 2019.
Decreased gas production from competing basins contributed to less supply available in the northern Louisiana area. Further, hot weather and low gas prices kept demand high.
But forward basis in 2021 hasn’t moved much from near a -20c discount. Could basis be stronger than the curve indicates in 2021?
The local supply-demand balance is more likely to improve, not deteriorate. In our view, production in the region should not escalate without further increases in Henry Hub prices, inbound supply via pipelines should be stable, and gas will have more capacity to leave the region beginning this year. All those add up to better basis pricing next year.
Local Production
- Well profiles suggest Henry Hub needs to persist above ca. $2.75 to encourage production growth from the Haynesville/East Texas area
- Some analysts call for declining production in 2021, but DUCs should provide some low-cost production, and hedges support realized prices. We expect Haynesville production would not move much higher or lower next year at current forward pricing.
Inbound supply
- No meaningful new inbound pipelines (or capacity increases) are planned in the near-term, according to our survey.
- Recently built pipelines into the region should have the same effect in 2021 as they have had recently. In other words, inbound supply is not rising materially.
Outbound pipeline capacity
- DTE says its LEAP project, from northwest Louisiana to a pipeline hub in southern Louisiana, will be online this year with 1.0 Bcf/d of capacity.
- Enterprise Products Partners plans to expand downstream delivery capacity by about 0.3 Bcf/d in late 2021.
Last (and probably least), local demand is not likely to expand.
All these items together point to a supply-demand balance in the “Haynesville” area to be, at least, unchanged, and probably better in 2021 than it is now.
