U.S. energy markets are coming to the end of their latest infrastructure cycle just as the reality of tight capital markets is sinking in. Permian crude oil and natural gas takeaway constraints are being relieved by new pipeline capacity. Long-delayed LNG terminals and NGL-consuming petrochemical plants are coming online. Essentially all growth in crude, gas and NGL production volumes is being exported to global markets that — so far, at least — have been absorbing the incremental supply. But there is a chill in the air. Besides the recent bump-up in crude prices tied to last weekend’s attack on Saudi oil facilities, commodity prices have remained stubbornly low. Easy access to capital is a thing of the past. No longer can private equity count on the build-it-and-flip asset investment model. Yup, it’s another inflection point in the Shale Revolution that we’ll start exploring today. All this has huge implications for energy flows, infrastructure utilization and price relationships across all of the energy commodities.
The Good News
Let’s start with the good news. New infrastructure is coming online across wide swaths of the energy markets, relieving capacity constraints that have been plaguing buyers and sellers for years. As shown in Figure 1, nowhere is this more true than the Permian. Two new crude oil pipelines out of the Permian are starting up now (Plains Cactus II and EPIC Crude), and the Permian gas market is finally getting some serious relief from Gulf Coast Express (GCX), the Kinder/DCP/Targa/Altus pipeline to the Corpus Christi area that started taking gas two weeks ago — just as Targa’s new Grand Prix NGL pipe is ramping up to full capacity. Another 3 MMb/d of Permian crude pipeline capacity is being developed (increasing takeaway by another 70%), two more Permian gas pipelines planned for the next two years have reached FID (final investment decision), and more Permian gas pipes — and a number of additional NGL capacity expansions — are in the works. Price differentials for all of these commodities are shifting accordingly, meaning that prices in the formerly bottlenecked areas are increasing as flows — and sometimes bottlenecks — move downstream.