(Reuters) – The U.S. Federal Energy Regulatory Commission (FERC) on Wednesday approved Kinder Morgan Inc’s <KMI.N> Dec. 13 request to start construction of its proposed Lockridge natural gas pipeline in the Permian basin in West Texas.
The Lockridge project is one of several under development or construction designed to remove gas from the Permian basin in West Texas and eastern New Mexico where pipeline capacity has not kept up with the amount of gas associated with record oil production in the region.
That lack of pipeline space has prompted some drillers to flare record amounts of gas in the Permian and caused prices at the region’s Waha hub <NG-WAH-WTX-SNL> to remain well below the U.S. Henry Hub benchmark in Louisiana <NG-W-HH-SNL> for years.
At times Waha prices even turned negative in 2019. Henry Hub’s premium over Waha averaged $1.42 per million British thermal units so far in 2020. That compares with $1.64 in 2019 and a five-year (2015-2019) average of 65 cents.
Henry Hub’s premium over Waha has been declining since Kinder Morgan’s 2.0-bcfd Gulf Coast Express pipe entered service in September, allowing more low-cost Permian gas to flow to higher-cost markets along the U.S. Gulf Coast and Mexico.
Kinder Morgan’s Natural Gas Pipeline Co of America LLC unit will build and operate the 17-mile (27-km) Lockridge pipe, which is designed to deliver 0.5 billion cubic feet per day (bcfd) of gas.
One billion cubic feet is enough gas to fuel about five million U.S. homes for a day.
Kinder Morgan, which was not immediately available for comment, has said it expected the Lockridge pipe to enter service in 2020.
Other pipes expected to enter service in the Permian include Kinder Morgan’s 2.1-bcfd Permian Highway in 2020 and MPLX LP’s <MPLX.N> 2.0-bcfd Whistler in 2021.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)