Let's Get It Started, Encore Edition - The 2021 Outlook For Permian Oil and Gas Markets

If you are looking for a way to focus on 2021 without reflecting on the last 12 months, we might have a deal for you. That’s because Permian natural gas and oil production is starting off this year at levels very close to where they finished 2019. That’s right: as far as the Permian is concerned, you can almost skip entirely over 2020 and pick up right where we left off the prior year. Well, for the most part. Oil prices are lower, rig counts have been reduced, and industry consolidation has removed some of the familiar Permian names from the stock ticker. In general, the atmosphere out in West Texas has calmed down dramatically from the headiest days of Permian growth and it’s safe to say it’s easier to grab lunch in Midland these days. Does that mean things in the basin aren’t still interesting out there? If you ask us, the answer is a resounding “No!” For starters, growth is back in the basin, even if it is at a slower pace than in 2019, and natural gas prices are stronger, with negative-price trades a thing of the past thanks to new pipelines. Even crude prices are better than some might think, with Permian barrels pricing over Cushing for many months now. The Permian in 2021 is certainly a half-empty or half-full type of market. We go for the latter in today’s blog, in which we outline our view of production growth in West Texas this year.

In observance of the Martin Luther King holiday, we’ve given our writers a break and are revisiting a recently published blog on Permian Oil & Gas Markets. If you didn’t read it then, this is your opportunity to see what you missed!

Last year at this time, we were writing about West Texas oil and gas markets in our 2020 Outlook For Permian Oil and Gas Markets. If you go back and read a little of that blog, you’ll know that some things didn’t pan out as we had expected. On the natural gas side of the ledger, we expected Waha prices to go negative, and that did happen early in 2020 (red dots in March and April in Figure 1) and again later in the year (red dot in October). What we really didn’t expect was the strength at Waha that occurred during the middle of 2020 (area labeled “Production Curtailments”). That was, of course, driven by the massive production shut-ins in the Permian triggered by dreadful crude oil prices, a situation we outlined most recently in Just What I Needed. However, most of that is behind us now, as producers ended their curtailments during the summer and prices for oil and natural gas recovered somewhat during the fall. As we expected, Waha prices were bolstered by the start of Kinder Morgan’s Permian Highway Pipeline (PHP) from the basin to the Texas Gulf Coast late in 2020 (labeled “PHP Interim Service”).

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