Moves Like (Midship) - A Step-Change for SCOOP/STACK Gas Takeaway Capacity

Midstreamers have been struggling to keep processing and natural gas pipeline constraints at bay in Oklahoma’s SCOOP/STACK plays, and the situation hasn’t gotten any easier in the past 18 months or so. Associated gas production from the Cana-Woodford has surpassed expectations, climbing 1 Bcf/d in that time to new highs near ~4.5 Bcf/d. Efforts by pipeline operators to keep pace with production gains have largely been on a piecemeal basis, mostly to tie in processing plants or modify/expand existing systems. Cheniere Energy’s Midship Project is looking to change that. The greenfield project, which received its final notice to proceed with construction from the Federal Energy Regulatory Commission (FERC) late last month, will level-shift takeaway capacity out of Oklahoma up by 1.44 Bcf/d in one fell swoop by the end of 2019. Today’s blog provides an update on Midship and other expansions in the region.

When we looked at associated natural gas production and the takeaway capacity situation in the crude- and condensate-focused SCOOP/STACK in central Oklahoma a couple of years ago, in early 2017 (see our Stardust blog series), midstream constraints for natural gas out of the plays were on the horizon but not imminent. Crude production from Oklahoma as a whole was recovering after the drilling slowdown in 2015-16 that followed the crude price crash of mid-2014. The comeback was almost entirely concentrated in the Woodford Shale’s Cana region (a.k.a. the Cana-Woodford) — the part of the Anadarko Basin underlying the 11-county SCOOP/STACK (as RBN defines the plays), and an area that had remained somewhat of a bright spot for producers even through the downturn in crude prices.

With crude prices on the uptick and crude production rebounding, Oklahoma’s associated gas production output, which had stagnated in 2016, was also on the rise by early 2017 (again, led by the SCOOP/STACK area). Dry gas volumes from Cana-Woodford (Figure 1) at the time were approaching 3 Bcf/d, up from just under 2 Bcf/d in 2014, while gas pipeline takeaway capacity sat at around 3.5 Bcf/d, leaving some room for production to grow into. Expectations were that crude and gas production out of the area would continue climbing, but futures prices at the time suggested the growth would be more gradual and gas volumes wouldn’t hit that 3.5-Bcf/d capacity ceiling until sometime in 2020. But then, as crude prices took off to well above $60/bbl in 2017 and above $70/bbl through mid-2018, producers in the Cana-Woodford pressed on; gas production surpassed 3.5 Bcf/d by the end of 2017 and climbed nearly 1 Bcf/d from there to top 4.5 Bcf/d a year later. Now, crude prices are back down near the $60/bbl level, rig counts are again coming off as producers pare back their capex budgets, and production growth appears to be flattening near that 4.5-Bcf/d level, at least for now. However, as we noted last month in our blog The Upside of Down, that won’t necessarily translate to production declines in 2019 — many oil- and gas-weighted producers that reported capex declines also are expecting to post solid gains in output this year (albeit some of that as a result of the steep increases in 2018 carrying over into 2019).