Production of crude oil and associated gas in the Permian continues to rise, despite pipeline takeaway constraints that have widened crude spreads and depressed natural gas prices at the Waha Hub. But while oil can be — and is being — transported by trucks and railroads when crude pipelines are full, natural gas needs to be either piped away or flared, and Permian gas production is now approaching the effective maximum takeaway capacity out of the basin. While a slew of new projects have been announced to relieve the Permian gas takeaway problem, the new capacity won’t arrive soon enough to keep Permian production from hitting the takeaway-capacity wall sometime in 2019. Today, we begin a series examining Permian production trends and their implications for pipeline flows and pricing in Texas.
We’ve been beating the drum for some time now in the RBN blogosphere about the coming onslaught of crude and associated gas production out of the Permian and the need for more pipeline takeaway capacity from the basin (see Omaha, Help on the Way, Witchy Waha, and It Was Good Living With You, (W)aha). More recently, in our All Dressed Up With Nowhere to Go blog series on Permian crude, we’ve been discussing takeaway constraints on the oil side and their deleterious effect on the crude price at Midland versus destination markets like the Cushing, OK, hub and the Gulf Coast. But with West Texas Intermediate (WTI) prices at close to $70/bbl — and Permian breakeven costs south of $40/bbl for many producers — differentials of $10, $15 or even $25/bbl probably would do little more than slow the pace of Permian production growth for crude and associated gas.
The latest data from RBN’s NATGAS Permian report shows that associated gas production (black line in Figure 1 below) surpassed the 7.0 Bcf/d mark in November 2017, and has been climbing at a pace of about 160 MMcf/d each month since then. As of April, volumes were up to 7.9 Bcf/d, a 12% increase in the last five months. That’s just shy of the 8.1 Bcf/d or so of takeaway options that include current pipeline capacity out of the basin on inter- and intrastate pipelines, plus local demand (stacked layers). On top of that 8.1 Bcf/d, there’s also another 3.0 Bcf/d or so of export capacity from West Texas to Mexico on the Roadrunner (570 MMcf/d), Comanche Trail (1.1 Bcf/d) and Trans-Pecos (1.4 Bcf/d) pipelines. However, as we discussed in Help On the Way, these takeaway routes remain largely underutilized for now as shippers wait for the downstream pipelines and gas-fired power plants to get built on the Mexico side of the border. As of April (2018), little more than 200 MMcf/d was moving across the border from West Texas.