U.S. pipeline natural gas exports are tightening local supply, but Cheniere’s portfolio management limits downside risks

Natural gas exports to Mexico in 2020 have offered a lifeline to a U.S. natural gas industry struggling with COVID-19 and falling LNG exports. Eagle Ford and Permian producers have benefitted from this trend, given their proximity to Mexico. What’s going to happen to South Texas (STX) price benchmarks when we return to more normal times (knock on wood) and LNG exports ramp up again? Clearly, STX prices will be supported by greater pipeline natural gas and LNG exports – but the effects on Cheniere’s Corpus Christi LNG terminal could be limited, as the facility has relatively little exposure to STX benchmarks despite located in South Texas.

Growing pipeline exports to Mexico

Our analysis of South Texas (which we define as spanning from Brownsville from Eagle Pass) shows that STX cross-border flows rose from just under 0.4 Bcf/d in 2010 to nearly 2 Bcf/d by 2019, the last full year of data from the U.S. Energy Information Administration. We believe STX exports now stand at all-time records.

LNG exports have cratered

While PNG exports to Mexico are surging as part of a long-standing trend, LNG volumes have taken a hit in recent months. When we say Texas LNG volumes have cratered, we mean it. Corpus Christi and Freeport are the two Texas LNG export terminals (Sabine Pass is close to the LA/TX border but is located in the Bayou State), and their volumes have declined from over 3.0 Bcf/d in early 2020 to just 0.2 Bcf/d in late July. Volumes have since recovered but remain well below year-ago levels.  

We expect Corpus Christi feed gas and export volumes to pick up in both the near-term and medium-term, particularly once Corpus Christi’s 3^rd Train is completed. By 2022, we project that Corpus Christi’s exports will stand at around 2.1 Bcf/d, up from ~0.9 Bcf/d in 2Q2020.

What happens when LNG exports resume?

Higher feed gas volumes from Corpus will add to more demand for U.S. natural gas but could have only a limited impact on demand for South Texas natural gas. As you can see from the chart below, only ~0.3 Bcf/d of Corpus Christi’s natural feed gas requirements for Trains 1-3 are sourced from STX (for a more comprehensive assessment of Corpus Christi’s firm gas transport portfolio, drop us a line). Corpus Christi sources ~1.7 Bcf/d from north-to-south flows, limiting its exposure to STX benchmarks.

Corpus Christi LNG: waiting for the post-COVID world

While greater PNG exports to Mexico and tighter supply/demand balances in STX could indirectly affect Corpus Christi, we expect that Cheniere’s geographically disparate sourcing (from LA, OK, and points farther north) will insulate it from any tightening of STX benchmarks. Our analysis shows Corpus Christi’s feedgas costs in the pre-pandemic period averaged about $0.09/MMBtu below the Henry Hub benchmark. When things (hopefully) return to normal Corpus Christi LNG will likely continue to enjoy sub-HH feed gas costs despite a potential tightening in STX gas balances.