Subal: Pockets of Growth Balance Fears of Slowdown

The U.S. midstream and energy infrastructure sector entered 2024 on a very interesting note. It was with a mixed fundamental outlook as U.S. and global economies prepare for the potential of a slowdown which could temper energy demand.

Hydrocarbon demand could also experience a loss in market share in overall energy demand growth as renewable fuels gain more traction. This view is offset by a solid oil price backdrop, which should continue to support drilling activity, healthy midstream industry state and some pockets of growth.  

The pockets of midstream growth include:

Gas processing in the Permian

The top six public processors that Seaport Global estimates account for close to two-thirds of the total processing capacity in the basin announced plans to increase capacity by more than 12% in 2024 and about 5% in 2025. Additional project announcements may further push the 2025 number.

This growth is supported by growing crude production in the basin as well as growing gas-oil ratio (GOR) as wells in the basin age. The Energy Information Administration (EIA) estimates that GOR for production in the Permian has risen by more than 25% over the last five years, matching the crude production growth in the basin and essentially compounding the need for gas processing capacity to support growing crude production.

Gas takeaway capacity in the Permian has been bottlenecked. The fourth-quarter expansion of the Permian Highway (PHP) and Whistler gas pipelines adds a combined 1.05 bcf/d of egress capacity. Additionally, the expected completion of the 2.5 bcf/d Matterhorn pipeline in third-quarter 2024 is expected to provide capacity to move the residue gas from the processing plants to the end-markets.

Similarly, NGL takeaway pipelines from the region are expected to see capacity increases of more than 1.5 MMbbl/d over the next couple of years. This should support good utilization of these processing facilities by providing downstream connectivity to products coming out of the new processing plants.  

LNG liquefaction capacity—a continuing growth story

U.S. LNG nameplate capacity reached about 90 mtpa at year-end 2022 following start-up of Venture Global’s Calcasieu Pass facility. Average gas flows to LNG plants in 2023 totaled about 13 bcf/d versus 11.8 bcf/d in 2022 and 10.7 bcf/d the previous year, recording a second consecutive year of 10% growth.

Looking forward, we expect U.S. LNG exports to enjoy significant growth based on the facilities already under construction. We estimate total liquefaction capacity of about 75 mtpa currently under construction in the U.S. This includes about 45 mtpa through the following three projects which can be viewed as in the advance stages of construction and expected to see majority of capacity available by end of 2025:

• Exxon Mobil’s Golden Pass: 16 mtpa;
• Cheniere Energy’s Corpus Christi Phase 3: 10 mtpa; and
• Venture Global’s Plaquemines facility: 20 mtpa.

We could thus see a U.S. LNG liquefaction capacity expansion of close to 50% through these three projects, providing a major boost to U.S. natural gas demand.

Russia’s invasion of Ukraine in 2022, and the subsequent explosion of the Nord Stream gas pipeline that alone had the capacity to provide piped gas from Russia to Europe to the tune of about 75 mtpa of LNG equivalent, has increased the call on U.S. LNG. This provided an impetus to new projects supported by European customers which, in turn, supported another 28 mtpa of U.S. LNG liquefaction capacity that took FID in 2023. Those projects are:  

• Sempra’s Port Arthur Phase 1: 11 mtpa; and
• NextDecade’s Rio Grande Phase 1: 17 mtpa   

These projects would boost capacity in the 2027-2028 time frame. Additional projects under advance consideration include Sempra’s Cameron Phase 2, Tellurian’s Driftwood, GlenFarne’s Texas and Magnolia LNG among others and could further add to the visibility of growth pipelines.  

Regulatory clarity could drive gas infrastructure

The Fiscal Responsibility Act of 2023 included a timely and unified federal review of energy infrastructure projects. This review includes completion within one year of an environmental assessment report and two years for environmental impact statements when needed for projects.

The act had special provisions for the long-delayed Mountain Valley Pipeline (MVP), providing a pathway for its completion that is now expected in the first quarter. The Williams Cos. is looking at gas infrastructure downstream of its Transco compressor station in Virginia, where MVP terminates. This regulatory certainty, coupled with recent cost escalation and setbacks in offshore wind development, could prompt more gas infrastructure projects in the region.