Trouble Every Day - Possible Fixes to the Permian's Gas Takeaway Constraints

Permian producers continue to walk a tightrope, almost perfectly balanced between still-rising production of natural gas and the availability of gas pipeline takeaway capacity to transport that gas to market. Don’t get us wrong. There are gas takeaway constraints out of the Permian, as evidenced by a Waha cash basis that averaged more than 50 cents/MMBtu last week. But a combination of factors — including increased flows to Mexico and a couple of small, under-the-radar expansions of existing takeaway pipes — has prevented the Waha basis from tumbling to $1 or even $2/MMBtu. But that big fall may still happen — in fact, you could say that odds are that severe takeaway constraints and differential blowouts will occur within the next few months. If and when that happens, what can producers do to quickly regain their balance? Today, we discuss recent developments in Permian gas markets and the options that producers, gas processors and midstream companies may need to consider if things get really tight.

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.

There is no doubt that the epicenter of U.S. associated natural gas production growth is the Permian, where dry gas output has increased from 3.5 Bcf/d in 2012 to more than 6.5 Bcf/d today. And there is a lot more where that came from. RBN’s Growth Scenario indicates that as much as 12 Bcf/d of natural gas production could be surging out of the Permian by 2022, with less than 1 Bcf/d of that needed for local demand. All of that incremental production will need to move out of the region, either on existing or new pipelines. Permian gas is such a big deal that RBN has developed a brand new weekly report focused specifically on the topic — how much is produced, where it is processed, its destination markets, how it is priced and, most importantly, how the Permian gas market will balance out, both today and in the coming months. Today we take you on a tour of RBN’s NATGAS Permian report five days before we close our inaugural report preview period — it’s your last chance! If it is not obvious, today’s blog is a blatant advertorial for our new report.