Citing continued Gulf Coast demand growth driven by exports to Mexico and via liquefied natural gas (LNG), Boardwalk Pipeline Partners LP plans to place its South Texas transmission assets back into lean gas service, management said during a recent 2Q2017 conference call.
The move comes after the Houston-based master limited partnership (MLP) sold its Flag City processing plant in the Eagle Ford Shale in May, along with two related gathering laterals.
"We retained the South Texas transmission pipelines, including those between Agua Dulce and Edna," CEO Stanley Horton said. Operations at the Flag City plant have gone well “since it was placed into service in 2013. However, market dynamics along the Texas Gulf Coast have changed, with demand growth expected from exports to Mexico, LNG exports, industrial corridors, Corpus Christi and the Houston Ship Channel, and proposed power plants.
"This expected demand provides greater potential value for our South Texas pipelines, which we are placing back into lean gas service. We are seeking opportunities to allow the main line to flow bi-directionally based on customer commitments. This is another example of our strategy to maximize value by repurposing our assets."
Horton said Boardwalk is in the process of evaluating its options with the South Texas pipelines, with the scope of its eventual capital expenditures dependent on how projects develop further downstream.
"We have not come to any conclusion on exactly what we're going to do, but we could be spending anywhere from $200 million up to $1.5 billion depending on what the load patterns are. There are a lot of gas exports going into Mexico.” He highlighted Cheniere Energy Inc.'s Corpus Christi LNG facility as an example. "So being able to transport volumes north to south down there could be very attractive for us," the CEO said.
"In addition, there may be times when markets in Agua Dulce and Corpus are not there, and our ability to take gas south to north, back up into the Houston Ship Channel/Katy area could be very beneficial too," he continued. "So those are the kinds of things that we're looking at. The amount of the capital expenditures and the timing of that, I can't tell you right now because we're in negotiations with a lot of people. My guess is that it will be done in stages over a period of years, but it gives us the opportunity to play down in that South Texas market and provide our shippers some flexibility on markets that they can get to."
Boardwalk management is taking a long-term view of the developing demand picture around the Gulf Coast.
"In the Gulf Coast area, we're looking at somewhere around 10 Bcf/d, and you've only got up and running at full load the three trains at" Cheniere's Sabine Pass "with the fourth one getting pretty close," Horton said. "So you've got another, say, 6-8 Bcf/d coming on in the next couple years, and that's basically the demand growth that's occurring there. There's some additional electric generation load, but the LNG demand load kind of dwarfs that.
"So that's the demand growth that is coming on, and most of that's going to be Marcellus/Utica. It's going to be Permian Basin. It's going to be Oklahoma that adds to the supply to feed that growth," he said. "That's the way the gas flows are working out, and the timing of that is going to be critical. But I would caution that, while I know everyone is looking at the latter part of 2019, these pipelines are going to be here for 40 years. While the market may not look absolutely attractive for us in 2019, if that happens to be the case, my guess is over time that those pipelines become more attractive as demand continues to grow in the Gulf Coast."
As it looks to capture new value from its South Texas pipelines, Boardwalk has been advancing about $1 billion in other growth projects, including its 1.4 Bcf/d Coastal Bend Header project designed to serve the Freeport LNG terminal on the Texas coast.