Permian natural gas production increased by about 10% in the winter of 2017-18, from about 7.1 Bcf/d to 7.8 Bcf/d, but all spring it’s remained relatively flat, never averaging more than an even 8 Bcf/d. There’s good reason for that. While at first glance it might seem as if there’s enough pipeline takeaway capacity out of the Permian to accommodate considerably more production growth, the big pipes from the Waha Hub to Mexico are transporting far less than they’re capable of because of delays in developing new pipes and gas-fired power plants on the Mexican side of the border. And pipes from the Permian to California are running less than full, in part because of that state’s hard tilt to renewable power. That’s left the Permian with a takeaway conundrum that may not be fully solvable — at least for a time — until new, greenfield pipeline capacity from West Texas to the Gulf Coast comes online in 15 to 18 months. Today, we discuss the options that producers, gas processors and midstream companies may need to consider if things get really tight.

Permian producers led the U.S. exploration and production (E&P) sector’s remarkable recovery from the financial crisis that was spurred by the oil price crash in late 2014. Dramatically lower costs and higher well productivity led to strong margins even at $50/bbl oil and promised bountiful returns should oil prices move higher. It’s no surprise that investors flocked to the stocks of Permian-focused producers, driving equity valuations, as measured by enterprise value per barrel of oil equivalent (boe) of proved reserves, to multiples three or four times the industry average. Recently, however, there have been growing investor concerns that logistical constraints on shipping crude oil and gas out of the region could restrict cash flows, investment budgets and output growth, and on Friday, Baker Hughes reported that the Permian’s rig count was down (albeit by only four, to 476). Since May 15, stock prices of smaller pure-play Permian producers Concho Resources, Diamondback Energy, Parsley Energy, RSP Permian, and Laredo Petroleum have fallen 10-15%. One of the larger Permian producers has bucked the trend, though: Pioneer Natural Resources. Today, we explore the drivers of Pioneer’s current valuation and analyze the factors that could propel future growth.

Natural gas producers in Western Canada, with their share of U.S. and Eastern Canadian markets threatened by competition from producers in the Marcellus/Utica and other shale plays south of the international border, for years have seen prospective LNG exports to Asian markets as a panacea. But efforts to develop liquefaction “trains” and export terminals in British Columbia failed to advance earlier this decade — for starters, their economics weren’t nearly as favorable as those for U.S. projects like Sabine Pass LNG. Then, by 2016-17, global markets were awash in LNG as new Australian and U.S. liquefaction trains came online, and the BC LNG projects still alive were either delayed further or scrapped. Now, with LNG demand on the upswing and the need for additional LNG capacity in the early-to-mid 2020s apparent, the co-developers of LNG Canada — Shell, PetroChina, Korea Gas and Mitsubishi — have attracted a new and significant investor: Petronas, Malaysia’s state-owned oil and gas company and owner of Progress Energy Canada, which has vast gas reserves in Western Canada. Today, we continue our review of efforts to send natural gas and crude oil to Asian markets with a fresh look at the LNG project and TransCanada’s planned Coastal GasLink pipeline, which will deliver gas to it.

The NGL sector is firing on all cylinders. Natural gas liquids production in the Permian, the SCOOP/STACK and other key basins is up, up, up. A number of new, ethane-consuming steam crackers are coming online along the Texas and Louisiana coast, most conveniently close to the NGL storage and fractionation hub in Mont Belvieu, TX. The export market for liquefied petroleum gases — propane and normal butane — is through the roof, averaging more than 1 MMb/d in the first five months of 2018 (almost all of it being shipped out of Gulf Coast ports), and ethane exports are strong too. What’s not to like? Well, NGLs don’t do anyone much good until they are fractionated into “purity products” like ethane, propane, normal butane etc., and the rapid run-up in U.S. NGL production — combined with the reluctance of producers to commit to new fractionation capacity — has the existing fractionation plants in Mont Belvieu running flat-out to keep up. Today, we begin a review of the NGL Capital of the Western World and considers why Mont Belvieu — as big as it is — is getting bigger.

The Permian Basin is awash in light, sweet crude oil that’s cheap to produce and easy to process. It’s so awash, in fact, that supplies are overwhelming takeaway pipeline capacity. The resulting bottleneck in West Texas has cratered prices in Midland, where West Texas Intermediate (WTI) — the region’s light, sweet benchmark — has blown out price-wise against the same grade in other locations, including Houston, with its crude-export docks. Less well known, but influential beyond its geography, is Midland West Texas Sour, or WTS. WTS is suffering from the same wide differentials as WTI at Midland, and those yawning spreads are dragging down the price of Maya, Pemex’s flagship heavy, sour crude. Today, we discuss some surprising ripple effects of takeaway constraints out of the Permian.

Drilling and completion activity in the Permian Basin doesn’t only produce vast quantities of energy, it consumes a lot of energy too, mostly in the form of diesel fuel to power the trucks, drilling rigs, fracturing pumps, compressors and other equipment needed to keep the oil patch humming. And while refineries within or near the Permian meet a portion of the region’s needs, rising demand for diesel there is spurring the development of new infrastructure — and the repurposing of existing assets — to bring additional fuel into the Permian from refineries along the Gulf Coast. Today, we discuss efforts to move more diesel to the oil fields of West Texas.

Gas producers in the Permian are facing the prospect of severe transportation constraints over the next year or so before additional gas takeaway capacity comes online. Left unchecked, continued production growth could send gas at Waha spiraling to devastatingly low prices for producers. However, there are a number of ways producers and other industry stakeholders could mitigate the growing supply congestion in West Texas, at least in part, and possibly dodge the proverbial bullet. The longer-term solution will come in the form of new pipeline capacity, which will shift vast amounts of Permian gas east to the Gulf Coast and potentially create a new problem — supply congestion and price weakness along the Gulf Coast, at least until sufficient export capacity is built there to absorb the excess gas. Today, we wrap up our Permian gas blog series, with our analysis of how these events will unfold, including an outlook for Waha basis.