You can count on certain things this time of year. Alabama is in the hunt for a college football national championship, there’s fresh powder somewhere in the Rockies, it’s mostly still shorts weather in Houston, and there’s a catchy new country song ripe for blog titles. January also brings some unknowns, with pundits throwing out various scenarios for stock and commodity markets, as well as the more recent trend in postulating the outcomes of the latest COVID variant. When it comes to the U.S. onshore oil and natural gas markets, the Permian continues to be old reliable, especially with crude north of $70/bbl and natural gas prices flirting with $4/MMBtu. There’s a lot we can’t predict about the year ahead (like the NCAA football championship, though this writer, at least, is pulling for Georgia next week), but our view of Permian production growth hasn’t changed. In today’s blog, we provide this year’s outlook for Permian crude oil and natural gas markets.
We started publishing a yearly outlook for the Permian two years ago and boy was our timing excellent. In that initial January 2020 outlook, which you can find here, we correctly forecast a pandemic, negative crude prices, and widespread Permian well curtailments. Just kidding! Who could have seen all of that coming? What we actually said was that Permian oil and gas production growth would continue given a certain price scenario, pressuring natural gas basis prices in the basin, though crude basis would stay tight due to a pipeline overbuild. Those basis views were mostly correct, though production took a hit in 2020, as we covered in last year’s 2021 Permian Outlook. In last year’s version of this prognostication, we returned to our growth view, which panned out. Volumes actually came in better than we expected, as you will see in a minute. So, where does that leave us as we start 2022? Our view is positive again regarding production growth, though there are some unique features to this year that add uncertainty, even before you throw in the usual unpredictable events that seem to happen with increasing frequency. Let’s turn our attention first to the Permian gas markets.
For those of you who don’t know, the Permian produces a lot of natural gas. Current volumes sit just under 14 Bcf/d, though they were once again dented by last weekend’s cold snap, which initially drew comparisons to last February’s Deep Freeze, but turned out to be nothing near that order of magnitude. (On a side note, if you are interested in more of the real-time analysis around Permian gas markets, you might want to check out our weekly newsletter, the NATGAS Permian.) Figure 1 below shows this year’s Permian gas forecast as it stands today, indicated by the dashed portion of the purple line, which is based on prices near the forward curve. We have also included in Figure 1 our forecast from last year, shown as the dashed gray line. Note that the solid lines are historical data — it has changed slightly as volumes were actualized.
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