Texas markets

HEP and EFM target gas export markets with South Texas midstream capacity expansion

Strong points

Expansions will double capacity to 2,100 cfd

Plans include gas gathering, processing and transportation

2024 completion coincides with New Mexico gas demand

Howard Energy Partners and Eagle Ford Midstream plan to nearly double natural gas capacity at the Agua Dulce hub by 2024, targeting high-end export markets.

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Dos Caminos, a joint venture between the two midstream operators, will focus its efforts on the Austin Chalk and Eagle Ford shale deposits in and near Webb County, Texas.

Currently, HEP and EFM collectively have approximately 1,100 cfd of gathering, processing and transportation capacity in South Texas, which will be expanded to 2,100 cfd through brownfield projects and new pipelines. HEP will be the operator of Dos Caminos.

“Given our unique footprint and history in South Texas, we are uniquely positioned to accommodate the significant growth in natural gas production in the Webb County area,” said HEP CEO, Mike Howard, in a July 27 statement.

In addition to a gas processing facility near Laredo, Texas, HEP co-owns the 200-mile Nueva Era pipeline, which brings South Texas gas production across the border into the heavily industrial site in Monterrey, northeastern Mexico. The Eagle Ford Midstream System, located in the Eagle Ford Shale, supplies gas to the Agua Dulce Hub in Nueces County, Texas. The Agua Dulce hub is particularly well connected to the Mexican market, with interconnections with NET Mexico, Valley Crossing and Kinder Morgan Tejas, all of which deliver gas to the US-Mexico border.

The first phase of the project will be completed in the third quarter of 2023, with the remainder to be completed in 2024.

Dynamic Agua Dulce

The additional midstream capacity could help ease constraints in South Texas from rising gas production that widened base spreads to cash in on Henry Hub. Agua Dulce Spot Gas has averaged a 67 cent discount to cash out Henry Hub so far in July, more than seven times the average 9 cent discount during the corresponding period of the last year.

Gas production in South Texas’ Eagle Ford Basin has averaged 5.37 Bcf/d so far in July, up 13% from 4.76 Bcf/d on average over the same period last year, according to data from Platts Analytics. The Eagle Ford saw the second highest increase in the platforms from year to year, after the Permian. Further increases in production in the basin are likely on the horizon, with rig counts increasing nearly 20% since the start of May.

Export request

South Texas gas production has the geographic advantage of being close to Mexico and international markets through Gulf Coast LNG exports.

U.S. gas exports to Mexico have averaged nearly 6 billion cubic feet per day so far in 2022, broadly in line with 2021 levels despite a significantly higher price environment. Platts Analytics expects Mexican demand for U.S. molecules to increase over the next few years as three new gas-fired combined cycle power plants come online by 2024. Additional gas demand in Mexico is expected to coincide with the target completion date of Dos Caminos. its expansion.

Demand for Gulf Coast LNG feed gas also promises to increase over the next several years, providing another potential focus for South Texas gas supply. A third wave of new liquefaction and export facilities quickly secured long-term commitments over the past year, boosted by record world gas prices. Platts Analytics forecast three to five final investment decisions on new export facilities in 2022.