Haynesville Price and Fundamentals

Recent News:

• (February 6, 2023) Haynesville continued to lead natural gas production growth in January with 14.92 Bcf/d (PointLogic). Natural gas production from Haynesville is expected to rise by 145 MMcf/d monthly to 16.585 Bcf/d in February, according to the EIA.
• (December 13, 2022, NGI) Haynesville is expected to continue to lead natural gas production growth month over month, accounting for 152 MMcf/d of growth and increasing its output to 16.409 Bcf/d, according to EIA's latest Drilling Productivity Report 
• (November 9, 2022, TC Energy) - TC Energy sanctioned the $400 million Gillis Access project, a 1.5 Bcf/d header system that would connect growing supply from the Haynesville basin to Louisiana markets, particularly the quickly growing Louisiana LNG export market. The project is expected to be completed in 2024.
• (October 28, 2022, DT Midsream) - DT Midstream reached the final investment decision on the Phase 3 expansion of the LEAP system, which will expand the system to 1.9 Bcf/d Q3 2024.
• (August 3, 2022, Energy Transfer) - "Energy Transfer recently completed a non-binding open season on its Gulf Run Pipeline Project. Customer discussions are ongoing, which will likely necessitate facilities beyond the initial design of 1.65 Bcf/d". AEGIS notes that Gulf Run will provide much-needed North-to-South takeaway capacity for Haynesville producers. Forward Haynesville basis indicates less stress on Haynesville egress as basis improves beyond Winter '22-'23.
• (June 29, 2022, Business Wire) - Williams Reaches Final Investment Decision on Louisiana Energy Gateway Project. The pipeline will gather 1.8 Bcf/d of natural gas produced in the Haynesville basin for delivery to premium markets along the Gulf Coast. 

December 14, 2022 - Haynesville producers have often been exposed to Columbia Gulf Mainline (CGM) basis as the gas they produce is sometimes sent east toward the Perryville Hub. Columbia Gulf sources gas in Appalachia and sends it south into Louisiana, passing through Perryville. This means Haynesville gas competes with supply from Marcellus.

CGM has been under heavy selling pressure in 2022. Most of the weakness had been in the Summer 2022 strip. Prompt-month CGM basis has fallen as low as -$1.07/MMBtu in late August, but colder weather in December has helped push the now prompt January contract trade at -$0.43/MMBtu.

The steep near-term price discount is reflective of implied takeaway constraints. CGM pricing is now coalescing between $-0.40 and $-0.14 for the next six seasonal strips, likely due to new infrastructure coming into service at the end of 2022 and beyond.

NGPL-TxOk had been under similar pressure as CGM, even though TxOk is on the Texas side of Haynesville.

Haynesville Shale Overview

The Haynesville Shale lies underneath parts of northwest Louisiana, East Texas, and southwest Arkansas. The shale is at depths of 10,500 to 13,000 feet below the surface and covers about 9,000 square miles. The formation came into prominence in 2008 as a major shale gas play.

The map shows both Columbia Gulf Mainline (CGM) (red) and NGPL (orange) pipelines. Highlighted sections of the pipelines represent where pricing takes place for both CGM and NGPL-TxOk, according to Platts methodology

Source: AEGIS, PointLogic, Platts

 Rig Count

Active rigs in Haynesville have soared in 2022 versus the Covid-19-induced lows in 2020. Increased public company and M&A interest in the gas play has pushed rigs to the highest level since 2012. 

Haynesville Rig count from the U.S. Department of Energy (monthly)

Total production growth: The supply-demand balance in the Lower 48 gas market is supporting prices and, therefore, drilling activity.

Haynesville rig counts were at 70 as of February 17, 2023. Active rigs in the region were at 58 this time last year, representing a 55% increase year-over-year. 

Increased rig counts indicate that operators are attempting to increase output or at least offset declining wells. Planned, and realized production growth is likely contributing to weakening Haynesville-related basis prices and pipeline constraints.

According to PointLogic, modeled dry gas production for Haynesville is near 14.7 Bcf/d as of mid-September. Over the next three years, Haynesville dry gas is expected to grow 3.3 Bcf/d from July 2022 to December 2025. 

Expectation of constraints. Cheaper basis prices, or large discounts to Henry Hub, usually imply some sort of egress capacity constraint or increased need for capacity out of the basin. The recent weakness for Columbia Gulf Mainline and NGPL-TxOk suggests the region is experiencing takeaway constraints.

Energy Transfer announced on December 15, 2022, that the 1.65 Bcf/d Gulf Run pipeline is in service. The 135-mile, 42-inch pipeline transports gas from Louisiana's Haynesville to the Gulf Coast. It is supported by a 20-year agreement with the $10 billion Golden Pass LNG export plant being built in Texas by Exxon Mobil and Qatar Energy.

Enterprise Products Partners has announced that it is expanding its Acadian pipeline system in Haynesville by 0.400 Bcf/d, which is expected to reach completion in 2Q2023.

DT Midstream Inc. announced a financial investment decision (FID) on its Louisiana Energy Access Project (LEAP) Expansion Phase 1 on February 25. It adds an incremental capacity of 0.300 Bcf/d and is slated for service in 4Q2023.

DT Midstream Inc. announced a financial investment decision (FID) on its Louisiana Energy Access Project (LEAP) Expansion Phase 2 on August 3. It adds an incremental capacity of 0.400 Bcf/d and is slated for service in 1Q2024.

Williams announced a final investment decision (FID) on its Louisiana Energy Gateway Project on June 29. It transports 1.8 Bcf/d of natural gas from the Haynesville shale basin to several Gulf Coast markets, including its Transco gas pipe from Texas to the U.S. Northeast and LNG export plants. The pipeline is expected to be in service in 4Q2024.

DT Midstream Inc. announced a financial investment decision (FID) on its Louisiana Energy Access Project (LEAP) Expansion Phase 3 on October 28. It adds an incremental capacity of 0.200 Bcf/d and is slated for service in 3Q2024.

Hedging considerations

CGM and NGPL-TxOk basis can be hedged with swaps. The basis is usually hedged as part of a complete natural gas hedge. The general recommendation is to hedge NYMEX Henry Hub natural gas and basis in two steps, but simultaneously. Contact us at info@aegis-hedging.com if you need to work through the details.