Omaha - Permian Natural Gas Is Increasingly Headed to Somewhere in Middle America

Permian Basin natural gas production is growing at a torrid pace. After starting 2017 just below 6 Bcf/d, production is set to breach the 8-Bcf/d mark soon on its way to 10 Bcf/d by the end of 2019. Pipelines flowing out of the basin are coming under increasing strain, and just about every single gas pipeline leaving the Waha hub in West Texas is now being utilized at levels not witnessed in years — if ever. Even routes north from the Permian to the Midcontinent and Midwest markets, traditionally only attractive on the coldest winter days, are starting to look viable year-round. Today, we look at recent gas-price and flow trends in the Permian natural gas market.

Permian Basin natural gas has been the subject of many RBN blogs over the last 18 months. Back in January, we looked at gas pipeline takeaway capacity and planned expansions in Help on the Way. Last fall, we analyzed Permian natural gas flow patterns and prices in Witchy Waha. And last summer, we wrote a four-part series, It Was Good Living With You, (W)aha, in which we outlined our viewpoint that Permian gas production is set to grow to levels certain to create gas takeaway constraints in the basin. That view still holds, and over the course of these blogs, two factors have remained constant: (1) natural gas production in the Permian has grown faster than expected, and (2) regional gas basis prices continue to deteriorate. With production curtailments now likely a fait accompli before pipeline expansions bring new takeaway capacity to the basin, the Permian gas market is progressing deep into its lineup of pipeline takeaway options. This blog will look at the most recent development in the Permian gas takeaway end-game: surging volumes headed north on the pipelines that lead to the Midcontinent and Midwest end-use markets.

We should note first that Permian natural gas production has been racing higher since our last look at the subject. The most recent data from RBN’s NATGAS Permian report shows that Permian dry gas continues to set records, and recently touched 7.85 Bcf/d (dark blue line in Figure 1). The trajectory of that growth is of most concern, with volumes up about 700 MMcf/d since December 2017. While NATGAS Permian’s current forecast shows Permian gas production reaching 10 Bcf/d by the end of 2019, we see potential curtailments of Permian gas production as soon as the third quarter of this year and sooner if production maintains its current flightpath. At present, the only factor likely to derail the growth of Permian basin natural gas would be takeaway constraints developing in the crude oil market that force producers to delay well completions.

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