Permian natural gas production is up nearly 40% over the past three years to 6.3 billion cubic feet/day (Bcf/d), and production could almost double to 12 Bcf/d by 2022. While there is 10.8 Bcf/d of existing gas takeaway capacity out of the Permian — suggesting that takeaway constraints are not imminent — much of the capacity to Mexico is not currently usable because of delays in related power-generation and pipeline projects south of the border. There also are limits to how much of the gas pipeline capacity from the Permian to California can be used for Permian takeaway, particularly during the off-season, when California can serve much of its incremental power load from hydro, solar and wind. The Midcontinent (Midcon) and Upper Midwest can only take so much Permian natural gas too; they’re taking gas from almost every direction. Put simply, takeaway constraints out of the Permian may be much closer than they appear. Today we consider existing natural gas takeaway capacity out of the Permian, how it compares with current and projected gas production in the region, and the potential for — and timing of — constraints that could reduce the prices that Permian producers receive for their gas.
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In Part 1 of our series, we said that the pace of Permian hydrocarbon production growth will be influenced by many factors, including the degree to which the market price for crude oil exceeds the play’s breakeven prices and the ability of midstream companies to add incremental oil pipeline takeaway capacity as that capacity is needed. While the pursuit of crude oil is driving drilling and production activity in the Permian’s Midland, Central and Delaware basins, rapid growth in crude output is being accompanied by large volumes of associated gas and natural gas liquids (NGLs) that also must be dealt with. Fortunately, the Permian has been a major production area for decades — thus, a number of pipelines to transport crude, natural gas and NGLs are already in place. But the existing pipelines we discussed in Part 1 and Part 2 will not be enough, particularly if one of the more optimistic production-growth scenarios for the Permian were to play out.