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Still the One - Permian Gas Output Remains High; Processing Capacity Being Added

Natural gas production volumes in the Permian Basin are very near the all-time record of 6.9 Bcf/d set last September, and crude oil and gas producers alike see nothing but blue skies for the highly prolific West Texas/Southeast New Mexico play. The Permian already has a lot of gas processing capacity, but a good bit of it is older, and parts of the region—especially the super-hot Delaware Basin—need more of the big, efficient cryogenic plants that can process 100 to 200 MMcf/d. Today, we continue our review of gas production and processing in the biggest U.S. gas-producing region that is not named Marcellus.

The past two years have been a challenging time for crude oil and natural gas producers in most of the U.S., but much less so for exploration and production companies in the 75,000-square-mile Permian Basin. In rock ‘n’ roll terms, the Permian is a lot like Bruce Springsteen––it’s been a consistent producer (of both gas and oil) for decades, and it has more respect today than ever. (You might even call the Permian “The Boss” of hydrocarbon output.) Thanks to favorable production economics and multiple pay zones, output levels in the Permian dipped only slightly as oil and gas prices tumbled, and have since rebounded. As we said in Part 1 of our series, crude oil has always been the big draw for Permian producers, but most of the wells there also produce large volumes of liquids-rich or “wet” natural gas that needs to be processed to extract natural gas liquids (NGLs). In its latest Drilling Productivity Report, the Energy Information Administration (EIA) projected that the Permian would produce an average of nearly 6.9 Bcf/d in October (2016), only 30 MMcf/d less than it did at its peak a year ago. Gas production in the Eagle Ford in South Texas, meanwhile, is projected to fall below 5.6 Bcf/d in October—a 25% drop from its all-time  high in February 2015. (Of course, Appalachia, with the prolific Marcellus and Utica plays, still reigns supreme as far as gas is concerned, with almost 25 Bcf/d now being produced in the region based on RBN production numbers).

There is nothing new about the need for most of Permian gas to be processed to extract NGLs (for more on this, see How Rich is Rich), and while the region has scores of gas processing plants (some nearly as old as Bruce himself!), more capacity is needed in the fastest-growing parts of the play, especially the Delaware Basin, which runs from Eddy and Lea counties in southeastern New Mexico down through Culberson, Loving, Reeves, Ward, and Pecos counties in West Texas. In Part 1, we noted that in the first half of 2016, several new gas processing plants came online in the Permian, including Enterprise Products Partners’ 200 MMcf/d South Eddy plant in Eddy County; EnLink Midstream’s 100-MMcf/d Riptide plant in Martin County, TX (in the Midland Basin); MarkWest Energy Partners’ 200-MMcf/d Hidalgo plant in Culbertson County; EagleClaw Midstream’s 60-MMcf/d Toyah I plant in Reeves County; Western Gas Partners’ 200-MMcf/d Ramsey IV plant in Reeves County; and Crestwood Midstream’s expansion of its Willow Lake plant in Eddy County to 50 MMcf/d.

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