February 28, 2018 – Platts
Analyst: Without new Permian gas pipes, prices could go to 'negative infinity'
By: Bill Holland
The Permian Basin is running out of pipeline to take away natural gas associated with shale oil drilling, meaning producers may soon get just pennies for their million British thermal units, or worse, pay to have gas removed so the oil can flow, a veteran analyst said.
Speaking about possible limits on the continued growth of shale oil and gas production in the U.S., RBN Energy LLC CEO Rusty Braziel said there is 8.5 Bcf/d of pipeline takeaway capacity out of the Permian which currently has 7.5 Bcf/d of gas production. "Production will exceed capacity this year," perhaps as soon as April, Braziel told executives at a short-term oil outlook event at the Center for Strategic and International Studies in Washington, D.C. on Feb. 27.
"Permian producers have a problem," Braziel said. To keep producing oil and liquids they need an outlet for the natural gas mixed into production from the well. Unlike oil, gas cannot be reasonably trucked, or shipped by rail, leaving flaring — burning the gas off at the wellhead — as the only solution to keep the oil flowing.
Producers are ambivalent about what happens to "free" gas because their focus is solely on volumes of $50-plus per barrel oil prices, according to Braziel, and the $2.50/MMBtu gas just gets in the way. RBN's models show producers having to pay $2/MMBtu to move gas to the Waha Hub once another billion cubic feet or more of gas flows out of the Permian this year…
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