The Haynesville shale in Louisiana recently surpassed the Barnett shale in Texas as the nation's highest-producing shale-gas play, according to reported pipeline flows cited by the U.S. Department of Energy. Natural gas production from the Louisiana section of the Haynesville overtook the Barnett's volumes in early to mid-February 2011.

Today, in the Haynesville shale midstream world, it seems that everything comes in twos. First, the play is spread over two states: East Texas and North Louisiana. The Haynesville shale development has become the story of two independently pursued geological plays, with the first centered in the northwestern Louisiana parishes of Bienville, Bossier, Caddo, DeSoto, Red River, Sabine and Webster, while the more recent, second development has centered in East Texas and across the Sabine River in the core counties of Nacogdoches, San Augustine and Shelby. Recent indications are that Sabine County to the south and Angelina County to the west may further extend the Texas portion of the play.

Second, there are two distinct shale-play potentials: Haynesville and Deep Bossier. In general, the shale is at depths of 10,000 to 14,000 feet, and is quite thick in the core areas. Geologically, the Haynesville shale lies between the Cotton Valley and the Smackover formations, both of which have seen conventional gas development in previous years. The gas in the Haynesville play is produced at high pressures and temperatures and contains carbon dioxide in various levels, with portions of the play at 2% to 3%, and requiring minimal, if any, gas treating. Other portions range between 3% and 6% and gas-treating facilities are required.

These midstream operators and gathering or treating facilities support ongoing Haynesville development.

Because the gas is not hydrocarbon-rich, gas processing is not required: rather, the various gas-treating facilities are the predominant implementation. Also, initially higher well-head pressures benefit operators by minimizing costs associated with gathering, compression and movement of the supplies into other pipelines. However, as the wells deplete over time, compression will be required to maintain aggregation goals and proper gas flows.

The Haynesville area has long been known to contain natural gas, but a recent turning point in development came with introduction of horizontal-drilling and hydraulic-fracturing techniques that had been successfully implemented and refined in the neighboring Barnett shale. In addition to Haynesville development, opportunities for producers include development of the Deep Bossier shale, which lies above the Haynesville shale in much of the development area, and portions of the Cotton Valley trend that underlie the developing portion of the Haynesville play in Texas. If this proves out, much of the upstream, gathering and other midstream infrastructure will already be in place—a significant two-plays-for-the-price-of-one cost advantage.

two sides of the river

Louisiana side

Aggressive development by major area operators in the Louisiana portion of the Haynesville play began only three years ago. Development resulted in the definition of the more productive core areas and included actions by operators required to hold very competitive acreage by production.

These expansions and new regional pipeline projects target the Louisiana side of the Haynesville play.

This early development activity also benefited from a then-higher Henry Hub forward price curve, which allowed parties to hedge portions of their developing production at higher prices, thus ensuring their forward cash flows and return potential for that portion of their activity. This hedging activity proved very advantageous because the Haynesville wells are deep, the gas is at high temperatures and high pressure, and well costs and associated completion costs are high. Producers' goals have been to optimize their drilling and completion activities and to connect the wells as soon as possible to take advantage of the hedged, high initial-year gas-flow rates and the resultant revenues.

Recent announcements indicate that the Haynesville play's current production level of 5.5 billion cubic feet (Bcf) of gas per day has just recently surpassed that of the plateaued Barnett shale. Nearly 2,000 gas wells have been permitted in the Louisiana portion of the play, compared to almost 15,000 wells in the Barnett, with almost 50% of those wells already producing, according to Louisiana's Department of Natural Resources.

Overall, the fact that Haynesville wells have achieved production success so soon is testimony to the availability of pre-existing facilities and ongoing development of midstream infrastructure. In the initial Haynesville development activities, several large operators found success in development activities west of the Red River in the parishes of Bossier, Caddo, DeSoto, and Sabine. Similarly, other operators developed their resources east of the Red River in the parishes of Bienville and Red River.

These gathering and transportation systems will be added to the Texas side of the Haynesville.

Existing infrastructure, though with limited capacity, provided initial well-connection support. These connects were to existing gathering and pipeline systems nearby, including Gulf South, Louisiana Intrastate, Regency Intrastate, Texas Eastern, Southern Natural and Tennessee Gas, among others. These facilities filled up quickly. Soon, midstream gathering and treating infrastructure began to develop on both sides of the Red River to support these growing activities. In many cases, producers have since implemented their own gas-gathering and treating systems to support their developments or have committed their volumes to gathering systems implemented by others. Table 1 is a list of the various area midstream operators and the midstream gathering or treating facilities used to support ongoing Louisiana play development.

Development activity in parishes west of the Red River has been predominant, and desired access to markets eastward at the Perryville Hub meant that additional pipeline infrastructure was required to move these volumes eastward across the Red River, a natural bottleneck. Challenged by imminent needs and tight timelines, pipeline operators found producers willing to commit to intrastate or interstate facilities needed to move their gathered gas out of the area and into a market trading point.

For their long-term needs, and somewhat ironically, many Haynesville area producers have connected into the recent major pipeline expansion projects that were implemented primarily to move Barnett shale volumes eastward. In some cases, temporary backhaul transportation paths westward to the Carthage Hub were made available by pipeline operators to area producers until necessary approvals were received and construction of new eastbound facilities could be implemented.

In general, these major pipelines were able to accept the additional Haynesville volumes into their existing pipeline systems with compressor additions. This did mean, however, that these Haynesville volumes would then be competing head-to-head for market share at Perryville with Barnett shale volumes already flowing therein. Table 2 is a list of expansions and new regional pipeline projects.

Last but not least, Enterprise Product Partners LP and Duncan Energy Partners LP have announced an extension of their jointly owned 1.4-Bcf–per-day Acadian Gas Pipeline system in southern Louisiana. The extension will run southward to connect to eastbound interstate pipelines and access Acadian Pipeline and Cypress Gas Pipeline markets in southern Louisiana. This system should be in service by year-end.

These existing and proposed gas storage facilities illustrate the growth potential of the Haynesville’s gas-storage industry.

Texas side

Developments on the Texas side of the Sabine River have lagged their Louisiana counterparts. However, positive results in the southern portion of the shale on the Texas side in Nacogdoches, San Augustine and Shelby counties indicate that development there also is appropriate, although somewhat handicapped by overall lower natural gas prices and a Henry Hub forward price curve that is less favorable than when similar initial development efforts were undertaken in Louisiana. However, because some Texas leases require that operators hold their acreage by production, some drilling and completion activity will continue, and operators will use these efforts to better ascertain what recoverable resource base they have, what techniques to use in developing such, and be ready to ramp up activity when overall gas prices are more supportive.

Not to be left behind, development activities on the Texas side of the Sabine River began in Panola and Harrison counties. However, development further south in Nacogdoches, San Augustine and Shelby counties is now under way with several operators reporting results similar to some of the better Louisiana wells. Thus, operator expectations are high, and many are moving forward with commitments to midstream infrastructure to move their gas into the regional supply mix.

Once again, existing infrastructure in these counties was able to support only very limited initial-well connections. Recently, several large gathering systems have been announced to move gas northward into the Carthage area, where it can be sold locally at the Carthage Hub or can be connected to eastward routes. Table 3 lists the various area midstream operators and gathering and treating facilities used to support ongoing Texas development.

At Carthage, Energy Transfer Partner's new Tiger Pipeline project provides an additional 1.3 Bcf per day of capacity from Carthage, Texas, eastward toward the Perryville Hub in Louisiana. With future capacity of up to 2.4 Bcf per day, Tiger Pipeline is designed to serve future needs in Louisiana because it can route eastward and move gas to Perryville, as well.

Two hubs

Regional trading hubs have evolved over the years. Recently, some companies filed with the Federal Energy Regulatory Commission (FERC) and received approval for hub-services tariffs. With such capability, companies not only provide hub receipt and delivery services, but might also provide a title transfer service to buyers and sellers. In other cases, where a number of area pipeline interconnects have similar commercial value and trade in a similar fashion, impromptu commercial trading hubs have been created to provide capabilities similar to, and competing with, these tariffed hub services.

Left, Haynesville leasing activity by quarter. Right, Haynesville permitting activity by quarter.

Carthage Hub

The Carthage Hub initially began with services provided to shippers at the tailgate of a large processing plant in Carthage, now owned by DCP Midstream Partners LP. Because gas processing is a non-jurisdictional service, the ability to shift deliveries among its interconnecting pipelines was a service that the plant offered to its upstream customers.

As other producers delivered gas into those same interconnecting pipelines, or as gas trading developed there, a market-trading hub began to evolve. As more and more customers arrived and flexibility developed around the Carthage Hub, a daily price-point index was established to reflect the results of the various daily trading activities. The price-point definition is very specific to Carthage trading and provides a consistent view of the commercial value received for gas.

Perryville Hub

Centerpoint Energy Gas Transmission Co. (CEGT) followed the Henry Hub model when it filed with FERC and received approval to implement and provide hub services using its regulated interstate assets in Perryville, Louisiana. This tariff provided firm and interruptible hub-services wheeling capability, wherein volumes received from one pipeline could be "wheeled" to another pipeline within the hub for a fee. A maximum rate was established for the various hub-wheeling transactions and CEGT could offer discounts under normal FERC discount policies.

In recent years, as a number of new pipelines have been built from the west into the Perryville area, each of those pipelines can provide competing Perryville-area deliveries into the same pipes in which CEGT's hub services can deliver. However, the owners of these newer pipelines did not establish hub services in their tariffs because they typically make deliveries of long-haul supply rather than wheeling service from one nearby pipeline interconnect to another.

As more commercial players and flexibility developed around the Perryville area, a daily price-point index was established to reflect various daily trading activities. Today, Perryville pipelines see considerable supply liquidity as the traditional CEGT hub and other companies are able to make competing deliveries into these same regional pipelines.

Gas storage

Gas storage in the north Louisiana area has historically been the story of two area fields, i.e. pipeline-operated Gulf South/CEGT's 86-Bcf Bistineau Field and pipeline-operated Tennessee Gas/Southern Natural's 58-Bcf Bear Creek Field. As Barnett shale supply volumes have entered the north Louisiana area seeking market, as increasing Haynesville supplies seek to capture their portion of market share, and as the pipeline trading activities that comprise the Perryville area hub have increased, the market has brought forth for industry consideration a number of gas-storage projects proposed by independent developers. Existing and proposed gas-storage facilities are included in Table 4.