Keep It Comin’ Love, Part 2 - Permian Crude Leads Growth, But Will Gas Processing Capacity Keep Up?

Permian crude oil production has climbed ~30% since the lows of 2020 to about 5.2 MMb/d this summer and helped keep crude oil — and gasoline — prices in check as market balances tightened. With that has come a lot of gross gas, which surged by over 40% to 21.3 Bcf/d on average this summer, up from the 2020 low of just under 15 Bcf/d. If unconstrained by infrastructure, RBN expects that to grow another 30%, or more than 6 Bcf/d, in the next three years, but only if there is adequate midstream capacity — everything from gathering lines to processing plants and, ultimately, gas and liquids transportation lines to deliver the products to consuming markets on the Gulf Coast. While there’s been a significant midstream build-out over the past two years, and more expansions are in the works, there are major outstanding questions about whether it will get built in time and in the right places to prevent prolonged bottlenecks.  In today’s RBN blog, we continue our series focusing this time on upcoming expansions and how total processing capacity stacks up against RBN’s Mid-Case production outlook over the next several years.

In Part 1 of this short series, we discussed the resiliency in Permian crude oil production post-2020 compared with other crude-focused basins, and the frenzied midstream development that has facilitated it. Unlike other crude-focused basins, oil output in the Permian has not only bounced back from COVID-related setbacks but has surpassed pre-pandemic levels and set new records in many months over the past year. In fact, Permian production, which has climbed by more than 700 Mb/d since 2020 and was sitting at a record 5.3 MMb/d in August, was almost single-handedly responsible for driving U.S. crude production back up to 12 MMb/d in recent months after it had flailed around 10-11 MMb/d for much of 2020-21.

That incremental crude oil production came with generous amounts of associated gas. Gas production was particularly resilient due to higher gas-to-oil ratios (GORs; see Don’t Stop Me Now). Gross gas volumes in the Permian are now at about 22 Bcf/d, up from 19.5 Bcf/d a year ago, 16.9 Bcf/d in 2020, and an average of 11.5 Bcf/d just four years ago, in 2018. That growth couldn’t have happened without a rapid build-out of new gas gathering, processing and takeaway capacity — NGL takeaway capacity too. Permian processing capacity — the plants required to remove natural gas liquids and other impurities from the product stream (see our Good to Be a Gas Processor series) before it can access long-haul gas pipelines — stood at around 23.3 Bcf/d at the end of the third quarter and will reach 24.5 Bcf/d by the end of this year, with more than half of that added since the start of 2018.