Only a few months after major crude oil takeaway constraints out of the Permian Basin caused price spreads to widen, the pipeline network serving the U.S.’s most prolific shale play may be on the brink of becoming overbuilt. We’ve already seen a number of new expansions and pipeline conversions completed in the past six months, and construction is underway on another 2 MMb/d of new pipeline capacity scheduled to come online between now and the first quarter of 2020. Beyond that, a few remaining projects have been proposed but have not yet reached final investment decisions. No midstream group wants to build a pipeline that will be half full, and no producer wants to make a 10-year commitment to a pipeline if there are going to be plenty of other options available. So who blinks first? In today’s blog, we review the Permian pipeline projects that are still on the fence and examine what factors will determine whether they end up being a “go” or a “no.”
It’s said that everything is bigger and better in Texas, and when it comes to the magnitude of negative natural gas prices, the Lone Star State recently captured the crown by a wide margin. By now, you’ve probably heard that Permian spot gas prices plumbed new depths in the past couple of weeks, falling as low as $9/MMBtu below zero in intraday trading and easily setting the record for the “biggest” negative absolute price ever recorded in U.S. gas markets. Certainly, that was bad news for many of the Permian producers selling gas into the day-ahead market. But every market has its losers and winners, and negative prices were likely “better” — dare we say much better — for those buying gas in the Permian. Today, we look at some of the players that are benefitting from negative Permian natural gas prices.
Crude differentials in the Permian are getting squeezed. The spread between Midland and WTI at Cushing widened out to near $18/bbl at one point in 2018, when pipeline capacity was scarce. But that same spread averaged a discount of only $0.25/bbl in March 2019. Differentials between Midland and the more desired sales destination at the Gulf Coast are also in a vise. What gives? Production in the Permian continues to climb, but the rapid pace of growth we saw in 2018 has slowed down a bit lately, with fewer rigs in service and fewer new wells being brought on each month. More importantly, we’ve seen several new pipeline expansions and pipeline conversions come online in bits and bursts — in some cases, ahead of schedule — and this new chunk of pipeline space has compressed Midland pricing. In today’s blog, we begin a series on Permian crude takeaway capacity and differentials, with a look at the handful of new projects that have come online in the past few months and what has happened to Permian prices as a result.
Midstreamers have been struggling to keep processing and natural gas pipeline constraints at bay in Oklahoma’s SCOOP/STACK plays, and the situation hasn’t gotten any easier in the past 18 months or so. Associated gas production from the Cana-Woodford has surpassed expectations, climbing 1 Bcf/d in that time to new highs near ~4.5 Bcf/d. Efforts by pipeline operators to keep pace with production gains have largely been on a piecemeal basis, mostly to tie in processing plants or modify/expand existing systems. Cheniere Energy’s Midship Project is looking to change that. The greenfield project, which received its final notice to proceed with construction from the Federal Energy Regulatory Commission (FERC) late last month, will level-shift takeaway capacity out of Oklahoma up by 1.44 Bcf/d in one fell swoop by the end of 2019. Today’s blog provides an update on Midship and other expansions in the region.
Permian natural gas prices are having a rough spring. After a volatile winter that saw two periods of negative-priced trades followed by a period of relatively strong prices, values at the Permian’s major trading hubs hit the skids earlier this week just as Spring Break set in for most in the Lone Star state. Once again, pipeline maintenance and burgeoning production appear to be the main culprits, but this upheaval feels different, in our view. Clearly, the price crash has reached a new level of drama, with day-ahead spot prices at West Texas’s Waha hub now settling below zero — some days by more than $0.50/MMBtu. Gas production has raced higher too, now within striking distance of 10 Bcf/d, on the coattails of continued oil pipeline capacity expansions, but new gas pipeline takeaway capacity is an estimated six months away. What becomes of Permian gas prices in the meantime, and how much worse could already-negative prices get? Today, we discuss the drivers behind the latest price deterioration and assess what’s ahead for the Permian natural gas markets.
Crude production is at all-time highs in the Bakken and the Niobrara, and the latest pipeline-capacity expansions out of both regions have been filling up fast. At the same time, producers in Western Canada are dealing with major takeaway constraints and are on the hunt for still more pipeline space. Midstream companies are trying to oblige, proposing solutions like a major Pony Express expansion or a new Bakken-to-Rockies-to-Gulf Coast fix — the Liberty and Red Oak pipelines — that could help address all of the above. The catch is that, with multiple producing areas funneling crude along the same general eastern-Rockies corridor and the outlook for continued production growth uncertain, how’s a shipper to know whether to sign a long-term deal for some of the incremental pipe capacity now being offered? Today, we consider the need for new takeaway capacity, the potential for an overbuild scenario, and what it all means for producers and shippers.
The Mexican market is critically important to Permian producers. Rising gas demand south of the border — along with expected gains in LNG exports from new liquefaction/export facilities along the Gulf Coast — are key to their plans to significantly increase production of crude oil, which brings with it large volumes of associated gas. All that gas needs a market, and nearby Mexico is a natural. For a number of years now, Mexico’s Comisión Federal de Electricidad has been working to implement a plan to add dozens of new gas-fired power plants and to support the development of new gas pipelines to transport gas to them from the U.S. The new pipelines have been coming online at a slower-than-planned pace. But what pipeline capacity has been added across the border from West Texas is already changing Mexico’s gas market. The El Encino Hub in Northwest Mexico is one such area where there are signs of a shifting supply-demand balance. Today, we continue a blog series on key gas pipeline developments down Mexico way and the implications for gas flows, this time delving into the dynamics at the El Encino Hub.
The vast majority of the incremental natural gas pipeline capacity out of the Marcellus/Utica production area in recent years is designed to transport gas to either the Midwest, the Gulf Coast or the Southeast. Advancing these projects to construction and operation hasn’t always been easy, but generally speaking, most of the new pipelines and pipeline reversals have come online close to when their developers had planned. In contrast, efforts to build new gas pipelines into nearby New York State — a big market and the gateway to gas-starved New England — have hit one brick wall after another. At least until lately. In the past few weeks, one federal court ruling breathed new life into National Fuel Gas’s long-planned Northern Access Pipeline and another gave proponents of the proposed Constitution Pipeline hope that their project may finally be able to proceed. Today, we consider recent legal developments that may at long last enable new, New York-bound outlets for Marcellus/Utica gas to be built.
While Permian natural gas pipeline announcements came fast and furious last year, it had been relatively quiet on that front the past few weeks. Leave it to the folks at WhiteWater Midstream to break the lull, which is exactly what they did with the recent announcement of a binding open season for a new interstate pipeline in the heart of the Delaware Basin. Named Steady Eddy, the pipeline would originate in an underserved corner of the Permian and provide access to the Waha Hub, where a number of planned greenfield pipelines leaving the Permian will begin. Today, we look at the details of WhiteWater’s proposed Steady Eddy pipeline project.
Mexico’s energy sector has been dealing with a fair amount of uncertainty of late. Newly installed Mexican President Andrés Manuel López Obrador has promised to undo elements of the country’s historic energy reform program, limit imports of hydrocarbons, and focus on domestic production and refining. How much will all this affect the export of natural gas from the U.S. to Mexico? It’s too soon to know what the long-term impact might be, but for now, gas exports remain near record highs and the pipeline buildout within Mexico is proceeding. That’s not to say, however, that the infrastructure work has gone without its own set of challenges — many of those were apparent well before the recent political changes. Today, we begin a series examining the opportunities and potential pitfalls ahead this year for Mexico’s natural gas pipeline infrastructure additions.
Production of natural gas liquids in the Rockies has increased by half since the end of 2012, with the bulk of the output — and those gains — coming from the greater Niobrara play in Colorado and Wyoming. As a result, a number of NGL pipelines out of the Rockies are now running full or close to it, and midstream companies are planning a mix of new pipelines, pipeline expansions and pipeline conversions with the aim of easing takeaway constraints by the latter half of 2019. But, with crude oil prices tanking and crude-focused producers reevaluating their drilling and completion plans, could the Niobrara be headed for an NGL takeaway over-build? In today’s blog, we continue our series with a look at existing and planned NGL pipes out of the Denver-Julesburg (D-J) and Powder River basins.
Permian natural gas markets felt a cold shiver this week, but not a meteorologically induced one of the types running through other regional markets. Gas marketers braced as prices for Permian natural gas skidded toward a new threshold: zero! That’s not basis, but absolute price, a long-anticipated possibility that became reality on Monday. The cause is very likely driven, in our view, by continued associated gas production growth poured into a region that won’t see new greenfield pipeline capacity for at least 10 months. What happens next isn’t clear, but expect Permian gas market participants to be a little excitable or jittery over the next few months. Today, we review this latest complication for Permian natural gas markets.
With recent project completions, Northeast takeaway constraints have eased, and regional supply prices have strengthened. But now the slate of planned pipeline expansions is dwindling. Between late-2015 and the end of 2018, midstreamers will have completed 23 takeaway projects out of Appalachia, totaling nearly 14.5 Bcf/d of capacity. That leaves just a handful of projects with little more than 6 Bcf/d of capacity to come, most of them facing stiff environmental opposition, regulatory turmoil and higher costs. Yet, as Appalachian gas production continues to grow, these projects will be critical to keeping the takeaway constraints and depressing supply pricing from returning, at least for a little longer. More than half of the remaining capacity would come from two competing projects — Dominion Energy’s Atlantic Coast Pipeline (ACP) and EQM Midstream Partners’ Mountain Valley Pipeline (MVP) — both greenfield efforts tied to growing gas-fired power generation demand along the Mid- and South-Atlantic seaboard and both embattled by a barrage of legal challenges. In today’s blog, we provide an update on the Atlantic Coast and Mountain Valley projects, including the latest status and timing.
The Energy Information Administration (EIA) estimates that natural gas gross production in the Rockies’ Niobrara region increased to a record 5.1 Bcf/d in September 2018, narrowly beating the previous high mark set almost seven years ago. And, with major, crude oil-focused producers in the Powder River Basin (PRB) and Denver-Julesburg Basin (D-J) planning for expanded crude output in 2019 and beyond, production of associated gas is expected to continue rising. All this growth — actual and anticipated — is spurring the development of new midstream capacity, especially gas processing plants, in both the PRB and the D-J Basin. So, what’s already in place, what’s being built and planned, and how soon will it need to come online? In today’s blog, we continue our review of Rockies crude oil, gas and NGL production, processing capacity and takeaway pipes, this time with a look at the gas side of things in the PRB.
The U.S. Northeast natural gas market has had a volatile few weeks. Regional gas production has surged, averaging 30.4 Bcf/d in the second half of October (2018), up 800 MMcf/d from the first half of the month and up nearly 1 Bcf/d from the September average. Normally (for the past several years), those kinds of supply gains, particularly in a shoulder month and during maintenance season, would have one result: Marcellus/Utica prices taking a nosedive. But that’s not exactly the case this year. Instead, Appalachian spot prices have been on a wild ride the past few weeks, swinging from barely $1.00/MMBtu (or more than $2.00/MMBtu below Henry Hub) on October 8, to over $3.00 (just $0.12 under Henry) on October 24 — the highest levels seen at this time of year since 2013, both in terms of outright prices and basis differentials to Henry Hub. The catalyst is nearly 3 Bcf/d of new takeaway capacity from the growing producing region that has been added in recent weeks, including, most recently, partial service on a brand-new route on Enbridge/DTE Energy’s 1.5-Bcf/d NEXUS Gas Transmission. What does this latest round of expansions and the resulting basis strength mean for the Northeast and its downstream gas markets? In today’s blog, we discuss highlights from our new 26-page report on evolving Northeast gas takeaway capacity utilization and additions, and their effects on price relationships.