Tellurian shelves Permian gas pipeline despite ‘over-subscribed’ open season

Tellurian has pulled the plug on its proposed Permian Global Access Pipeline (PGAP) running from Texas to Louisiana by withdrawing its application to build the delayed 2.3 Bcf/d capacity pipeline. Tellurian’s subsidiary Permian Global Access LLC cited “current market conditions”, despite an open season for the pipeline’s capacity receiving “over-subscribed indications of interest” last year, and forecasts suggesting Permian gas production may exceed takeaway capacity by 2023.

Tuesday saw Permian Global Access LLC (PGAP) submit its request to the Federal Energy Regulatory Commission (FERC) to withdraw the pipeline from the Commission’s NEPA [National Environmental Policy Act] pre-filing review process, with the federal body having approved the pipeline for the review process in September 2019.

In its letter to FERC on Tuesday, PGAP said that Covid-19 pandemic and subsequent “collapse in the domestic and global energy commodity prices” reduced energy consumption. The “addition of alternative transportation solutions out of the Permian Basin” has forced the firm to think again.

“PGAP has re-evaluated the Project’s need and has determined that current market conditions do not support the economic thresholds to pursue the Project further at this time,” Tellurian’s subsidiary said.

However, PGAP said it “continues to believe that in time the proposed Project will provide significant benefits” and that “in the event market conditions rebound and the market needs an additional transportation solution”, the firm would conduct a new open season for the pipeline’s capacity.

If a new open season proved fruitful, the firm “would then work with the Commission to re-establish the NEPA pre-filing review process”.

Tellurian’s subsidiary completed a binding an open season on the Permian Global Access pipeline in April last year and reported in its Q2’19 results that this resulted in “over-subscribed indications of interest”.

Tellurian’s subsidiary was offering capacity on a firm basis for 10-20 years on PGAP, running 625 miles from the Waha hub in Texas to Gillis in Louisiana.

The pipeline would have transported gas from the Permian shale play and associated shale plays around Midland, Texas. The firm highlighted the need for additional infrastructure to transport gas from the Permian, where gas is largely associated with oil production.

Tellurian had previously estimated that associated gas production from the Permian would exceed 16 Bcf/d “at a minimum” by 2023, with the firm suggesting the pipeline would help reduce flaring from the Permian and cater for growing gas demand in southwest Louisiana and east Texas.

“Growth of the petrochemical, industrial and [LNG] export industries in the region are expected to increase natural gas demand in the area by approximately 14 Bcf/d by 2025,” Tellurian’s binding open season published in April 2019 states.

“Total regional consumption could reach or exceed 20 Bcf/d in the same time period. New pipelines are necessary to meet this growing demand. Without new infrastructure, the region will experience a deficit of natural gas supply by 2025,” the document adds.

After Permian gas production dipped in earlier this year on the crude price plunge, output has rebounded strongly over the second half of 2020, with Rystad Energy stating in the summer that Permian production will “hit record levels by late-2021, reaching 16 Bcf/dd by the end of 2023”.

This is 2 Bcf/d lower than Rystad’s estimate prior to the Covid-19 pandemic, however even at the 16 Bcf/d level, the Norwegian firm suggests additional takeaway capacity from the Permian will be needed from as early as 2023-24.

Tellurian’s shelving of the Permian pipe raises questions over the remaining three pipelines the firm has planned as part of its “Tellurian pipeline network” spanning over 1,000 miles and costing an estimated USD 9.3 billion. Given Tellurian’s market cap of ~USD 540 million, it is unlikely it can pursue all three on its own in a bear market.

In its latest corporate presentation Tellurian focuses on its Driftwood pipeline, given this 4 Bcf/d pipeline, costing USD 2.3 billion, will directly feed its flagship Driftwood LNG plant.

The presentation makes no mention of the proposed the 2 Bcf/d Haynesville Global Access pipeline – costing an estimated USD 1.4 billion – which has been proposed to lift gas from Tellurian’s shale acreage in the Haynesville play.

There is also no mention of the 2 Bcf/d Delhi Connector, costing an estimated USD 1.4 billion. The pipeline originates in Perryville/Delhi in north-east Louisiana, “the crossroads of multiple US gas supply basins”, and terminate near Lake Charles. - ET