You probably won’t be surprised to hear that we believe the Permian Basin is set for another year of crude oil and natural gas production growth. Everyone’s come to expect that from the Permian. What is new, though, is that the vast production area in West Texas and southeastern New Mexico has taken on some serious global significance over the past year — especially as an increasingly important energy supplier to Europe. That emerging role is likely not only to support continued production growth in the Permian but also to shape how the basin’s infrastructure is built out through the rest of the 2020s. And we also know that infrastructure development is critical to the Permian’s ongoing success — in 2023, new gas pipeline takeaway capacity is needed pronto and it may not be long before new oil-pipeline capacity from the Permian to Corpus Christi is required too. In today's RBN blog, we provide this year’s outlook for Permian natural gas and oil markets.
This is our fourth annual Permian Outlook blog — we released our first in January 2020, back when only a handful of folks had read about the novel coronavirus. There wasn’t a whole lot we got right in that 2020 Permian Outlook, but it’s doubtful we are alone in that regard. After 2020’s negative crude oil prices and widespread production curtailments, 2021 saw things in the basin begin to return to normalcy, though the pandemic continued. In our 2021 Permian Outlook, we forecasted solid natural gas and oil production growth, as well as expanded natural gas infrastructure, with the start of the 2-Bcf/d Whistler Pipeline. That new pipeline capacity led to the strongest Waha basis in the Permian gas market in quite some time. Heading into last year, our 2022 Permian Outlook foresaw continued growth for Permian gas and oil production as well as a weakening Waha basis — that came to fruition and then some. Last year also marked the first year since the pandemic began that Permian oil production grew appreciably above its pre-pandemic high, with about 600 Mb/d of new field production added during 2022. Despite the production growth, however, crude oil price differentials in the Permian moved very little due to excess capacity out of the basin, which was also consistent with our view at the start of the year.
Which brings us to this year’s outlook. We’ll start with natural gas, where our view is much as it has been: plenty of growth. When it comes to Waha absolute prices and basis — the difference between Henry Hub and Waha — things could get ugly, but we’ll get to that in a minute. After growing from 14 Bcf/d at the start of 2022 to over 16 Bcf/d by the end of the year (solid purple line in Figure 1), we see Permian gas volumes continuing to move higher during 2023. The dashed purple line shows our current forecast: By the end of this year, we see Permian dry gas volumes topping 17.25 Bcf/d, or about 1 Bcf/d higher than where we forecasted it at this time last year (dashed gray line).
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