MIDLAND, Texas—Not many oil and gas conference speakers illustrate their arguments with citations from Tolkien, but the peculiar nature of the Waha natural gas hub inspired Michael Banschbach’s approach.

“One does not simply walk into Waha,” the energy consultant said, paraphrasing the character of Boromir from “The Lord of the Rings: Fellowship of the Ring” at the recent Midstream Texas conference. “It’s not a place that you feel that you’ve arrived at. It’s more a geographic area. It’s a confluence of pipelines that is a Texas area, maybe a three- or four-mile diameter area. But it’s much different than a specific place that you’re actually at.”

But it’s not exactly Mordor, Tolkien’s orc-populated land that is home to Mount Doom, either. It’s just that, unlike Henry Hub in Erath, La., it is not a true hub.

Michael Banschbach believes Waha hub natural gas pricing will be volatile. (Source: Hart Energy) “Waha’s a little bit different,” Banschbach said. “There’s a lot of gas that interconnects from one pipeline to another. It never really does go through what we consider a hub. Actually there are probably three or four hubs if you want to look at it that way.”

Add the current 5.7 Bcf/d to 6 Bcf/d capacity to the three new lines that will move gas to Mexico and this non-hub hub has 12 Bcf/d running through it, he said. But while there’s plenty of capacity, there is also plenty of unreserved space in those pipelines for prospective customers.

The strange nature of Waha makes it difficult to get a handle on the price of gas, unlike most hubs like Henry.

“There are several different pricing points around Waha,” Banschbach said, naming El Paso Permian, El Paso Waha, Oasis-Waha Pool and Waha. “Each one is at a slightly different point. Some are upstream of the hub, some are downstream of the hub.

“That will change with this Trans-Pecos hub and all the smart marketing people will be involved.”

In addition to smart people, it will be the extent of natural gas infrastructure in Mexico that will determine the ultimate success of Waha as a staging point to deliver gas from the corridor in Culberson and Reeves counties, Texas, across the U.S. border. That and pricing.

“All of the pipelines at Waha have, at their own expense—which is unheard of—interconnected with Trans Pecos Pipeline or will interconnect with the Trans Pecos Pipeline to be able to ship gas to Mexico,” Banschbach said. “CFE [Comision Federal de Electricidad], which is the Mexican utility, will own that. Energy Transfer will operate it.”

Typically, the price difference between Waha and the Houston Ship Channel is $0.10 to $0.15. In April, however, it widened considerably when CFE canceled a request for proposal that it made in November for about 2 Bcf/d of natural gas. Knocking that kind of demand out of the market battered the price at Waha.

That is why the journey that begins in a place reminiscent of Tolkien’s Middle Earth depends on what is happening in destination: Mexico.

“Probably the biggest question is Mexico,” Banschbach said. “What is going to happen? What is the state of the infrastructure once you cross the border? Will they really get all these power plants built? Will they really use all this gas? The market reacted very quickly to the 2 Bcf/d deferrment. Certainly they’ll probably use that amount of gas at some point in time, but it’s deferred.”

The sentiment that he gathered from operators involved: “It’s going to be ugly in the next 18 to 24 months.”

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.