US LNG Exports Part 2: How Do LNG Exports Benefit Midstream?

Last week, we discussed the step change in US LNG export capacity expected next year and the role US LNG export projects could play in filling a potential global supply gap anticipated in the coming years. In today’s post, we discuss how LNG exports increase infrastructure demand to the benefit of midstream. We also discuss how LNG exports facilitate natural gas production growth, with broad benefits for midstream companies and natural gas producers.

LNG exports increase infrastructure demand.

It probably goes without saying that infrastructure is needed to get natural gas from the wellhead to an LNG export facility. Gathering pipelines, processing plants (to remove impurities and separate natural gas liquids) and larger natural gas pipelines are generally required infrastructure between a natural gas well and a liquefaction facility. In some cases, new infrastructure may be needed, and in others, existing infrastructure may be expanded or reversed to supply natural gas to an LNG export facility. Of course, pipeline expansions are easier than newbuild projects and can be completed by enhancing pumps to increase capacity (greater compression).

Natural gas sourcing for each LNG project can vary. Cheniere (LNG, CQH, CQP) will use a combination of third-party pipelines, as well as pipelines Cheniere owns, to supply natural gas to its LNG export facilities at Sabine Pass and Corpus Christi. Cheniere’s Creole Trail Pipeline is interconnected with several pipelines and receives volumes from Williams Partners’ (WPZ) Transco, Spectra’s (SEP) TETCO, and Energy Transfer’s (ETP) Trunkline pipelines to supply Sabine Pass. For Corpus Christi, Cheniere’s 23-mile Corpus Christi pipeline similarly connects to multiple natural gas pipelines, on which Cheniere has capacity. For example, Cheniere and Natural Gas Pipeline Company of America (NGPL) – jointly owned by Kinder Morgan (KMI) and Brookfield Infrastructure Partners (BIP) – signed a 20-year agreement providing capacity on NGPL for the gas supply at Corpus Christi. An expansion of NGPL will facilitate the capacity contracted for Corpus Christi. For a midstream company, it’s not difficult to see the appeal in a long-term contract that supports an expansion project.

With its integrated approach, Tellurian (TELL) plans to invest $7 billion to build a network of three pipelines, including a 2 Bcf/d pipeline from the Permian and a 2 Bcf/d pipeline from the Haynesville, with both terminating in Gillis, Louisiana. A 96-mile pipeline with 4 Bcf/d of capacity is planned between Gillis and the Driftwood LNG facility to supply the export facility. Upstream, TELL has acquired acreage in the Haynesville for producing natural gas.

While most LNG export facilities are planned for the Gulf Coast, that doesn’t mean that gas supply will only come from the Gulf Coast. Thanks to the interconnectedness of US natural gas pipelines, Sabine Pass can source natural gas from every producing region in the Lower 48 east of the Rockies. This obviously includes the prolific Marcellus and Utica. While there can be different approaches for supplying natural gas to export facilities (newbuilds vs. existing capacity, owning pipelines vs. owning capacity on third-party pipelines) and the source of natural gas can vary, infrastructure provides the vital bridge between producing areas and LNG export facilities.