The Permian Basin will soon be open for business, but Agua Dulce isn’t ready to buy yet. Two pipeline expansions aimed for South Texas could temporarily swamp the regional natural gas market in 2H26.
Kinder Morgan’s (KMI) Gulf Coast Express expansion (~570 MMcf/d) is slated to come online in June and WhiteWater’s Blackcomb (2.5 Bcf/d) follows later this year, together adding ~3.1 Bcf/d of new pipeline capacity from the Permian Basin into the Agua Dulce hub.
East Daley Analytics models the South Texas gas market in the Houston Ship Channel Supply & Demand report. Agua Dulce today balances roughly 11 Bcf/d of gas supply against 9 Bcf/d of demand, clearing ~2 Bcf/d northbound toward Katy across a mix of interstate (Tennessee Gas, Texas Eastern, Natural Gas Pipeline Co. of America) and intrastate (Houston Pipe Line, KM Texas, KM Tejas, Enterprise) pipelines.
The interstate systems in South Texas are running well below capacity: Tennessee’s northbound corridor runs at roughly 20-30%, NGPL currently flows southbound through the same corridor to feed Cheniere Energy’s (LNG) Corpus Christi Pipeline, and Texas Eastern volumes feed Freeport LNG before reaching Katy. There is sufficient capacity to move more gas north, but there is not enough demand at either Agua Dulce or Katy to balance the coming supply growth.
When 3.1 Bcf/d of new Permian supply arrives, northbound demand would need to jump to as high as 5 Bcf/d against an effective corridor capacity closer to 4 Bcf/d. That supply either backs up at Agua Dulce, widening the South Texas basis, or transits north and backs up at Katy, pressuring basis there and dislocating Katy from the Henry Hub.
The 2021 Whistler Pipeline in-service provides the best comparison: 2.0 Bcf/d of new supply pushed the Agua Dulce-Katy spread to -$1.12/MMBtu by November ’21 and -$1.89 by December ‘21. The looming slug of Permian supply is larger (3.1 Bcf/d) and will arrive at a hub already trading at a slight discount, with Katy trading ~$0.05-0.15 over Agua Dulce today.
The window for a regional glut is real but likely short. WhiteWater’s Bay Runner (2.64 Bcf/d) will be mechanically ready by 3Q26 to feed Rio Grande LNG, while the startup of Corpus Christi Stage 3 midscale trains will increase regional demand through 2H26. By 1H27, the Traverse Pipeline will open 2.5 Bcf/d of capacity between Agua Dulce and Katy, and NextDecade’s (NEXT) Rio Grande LNG is due to begin pulling volumes by mid-2027.
LNG demand is the solution to the regional supply bubble, but the timeline is also unforgiving: Any delay to Rio Grande or Corpus Christi commissioning will extend the oversupply window and deepen the dislocation. Full structural recovery waits on Rio Grande Train 3 in mid-2029, bringing cumulative LNG demand at the project to ~2.3 Bcf/d. That marks only the first phase of the buildout: Trains 4 and 5 bring total Rio Grande feedgas capacity to ~3.84 Bcf/d, with Train 5 substantial completion guaranteed by 1H31.
See East Daley’s Houston Ship Channel Supply & Demand report for more on the South Texas market outlook. – Oren Pilant Tickers: KMI, LNG, NEXT.
Download Part II of East Daley’s Permian Basin White Paper Series
The Permian Basin’s next big buildout is already taking shape, but this time the driver isn’t crude oil. In The Permian Basin at a Crossroads: Why This Pipeline Boom is Different, East Daley Analytics’ latest white paper reveals how gas demand from AI data centers, utilities and LNG exports is rewriting the midstream playbook in the leading US basin. Over 10 Bcf/d of new capacity and $12 billion in investments are reshaping flows, turning the Permian into a gas powerhouse even as rigs decline. Read Part II: Why This Pipeline Boom is Different
The Daley Note
Subscribe to The Daley Note for energy insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.