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Released February 07, 2020 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oil & Gas infrastructure developers working in the Permian Basin are dancing as fast as they can to keep up with growing production of natural gas from that region. It's not nearly fast enough.
Last year's completion of the Gulf Coast Pipeline, which can transport up to 2 billion cubic feet per day (Bcf/d) of gas from West Texas to the Gulf Coast, helped alleviate some of the imbalance between gas production and gas infrastructure capacity, Shane Mullins, Industrial Info's vice president of product development for energy markets, told an audience of about 1,500 late last month at Industrial Info's 2020 Industrial Market Outlook briefing in Houston, Texas. But that pipeline cannot singlehandedly bring into balance the Permian's production gains and takeaway capacity, he continued, and no new gas pipeline is scheduled to begin operating in 2020.
Meanwhile, production gains in the Permian are expected to continue outstripping new processing and pipeline infrastructure, likely leading to lower prices in the area and increased flaring or venting of gas, he projected.
The current environment of low prices likely will compound the problem. Natural gas futures closed at $2 per million British thermal units (MMBtu) on January 17, and have spent the last two weeks under that price point during the dead of winter, when seasonal heating demand normally would exert upward pressure on prices. Investors see a near-term future where supply exceeds demand, even before regional infrastructure bottlenecks are considered.
Producers decry flaring as wasting a product that has value. But if the price is too low, or processing or pipeline constraints impede getting the product to market, there are scant other choices. From a global climate change perspective, venting methane directly into the air is worse than flaring it, as pure methane has a more potent effect on climate change than flared natural gas.
"We could very well see occasional negative gas prices in the Permian this year, as we did for periods in 2019, as midstream plays catch up to production," Mullins told the Outlook audience Jan. 23. "West Texas and New Mexico will need to build additional gathering capacity. A lot of new compression also is needed."
For more on the North American gas infrastructure buildout, see January 29, 2020, article - Houston Outlook: North American Gas Infrastructure Buildout Continues.
As an example of the growing imbalance between gas production and gas infrastructure in the Permian Basin, Mullins said the 2 Bcf/d Gulf Coast Express Pipeline was filled completely within a month, leaving producers to wait for more pipeline capacity. The imbalance is also shown in the sharp rise of gas flaring and venting in the Permian. Flaring in that basin reached an estimated 293 billion cubic feet (Bcf) in 2019, up sharply from the 97 Bcf that area flared or vented in 2013, according to data compiled by Reuters.
Click on the image at right to see gas flaring and venting for the Permian, Bakken and the U.S. as a whole from 2013-2019.
Gas flaring and venting has also soared in the Bakken formation in recent years, though not quite as fast as in the Permian. For more on flaring and venting in the Bakken, see January 7, 2020, article - New Order May Quicken Construction of O&G Infrastructure in North Dakota.
Both North Dakota and Texas have rules to limit flaring or venting, but they have been reluctant to penalize producers when flared or vented volumes exceed limits.
The Permian infrastructure problem is unlikely to be solved this year. There are nearly $30 billion of proposed gas processing and pipeline projects in the Permian that are scheduled to begin construction in the Permian between January 2019 and December 2020. But none of those projects are scheduled to begin operating this year.
Although there is enough pipeline capacity in the Permian to transport so-called dry gas for the next few years, according to oil and gas data firm Enverus, when associated gas, which is produced as a byproduct of oil extraction, is added, the outbound pipeline capacity will be insufficient for the next several years.
Click on the image at right to see a chart projecting dry gas production, wet gas production and outbound pipeline capacity in the Permian through yearend 2023.
"Developers and producers face a couple of tough years in the Permian," Mullins commented. "Efficiency gains have resulted in the production of a lot more gas with a lot fewer rigs, and there are end markets that want that gas, but getting it from the field to the market continues to be an elusive balancing act."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Last year's completion of the Gulf Coast Pipeline, which can transport up to 2 billion cubic feet per day (Bcf/d) of gas from West Texas to the Gulf Coast, helped alleviate some of the imbalance between gas production and gas infrastructure capacity, Shane Mullins, Industrial Info's vice president of product development for energy markets, told an audience of about 1,500 late last month at Industrial Info's 2020 Industrial Market Outlook briefing in Houston, Texas. But that pipeline cannot singlehandedly bring into balance the Permian's production gains and takeaway capacity, he continued, and no new gas pipeline is scheduled to begin operating in 2020.
Meanwhile, production gains in the Permian are expected to continue outstripping new processing and pipeline infrastructure, likely leading to lower prices in the area and increased flaring or venting of gas, he projected.
The current environment of low prices likely will compound the problem. Natural gas futures closed at $2 per million British thermal units (MMBtu) on January 17, and have spent the last two weeks under that price point during the dead of winter, when seasonal heating demand normally would exert upward pressure on prices. Investors see a near-term future where supply exceeds demand, even before regional infrastructure bottlenecks are considered.
Producers decry flaring as wasting a product that has value. But if the price is too low, or processing or pipeline constraints impede getting the product to market, there are scant other choices. From a global climate change perspective, venting methane directly into the air is worse than flaring it, as pure methane has a more potent effect on climate change than flared natural gas.
"We could very well see occasional negative gas prices in the Permian this year, as we did for periods in 2019, as midstream plays catch up to production," Mullins told the Outlook audience Jan. 23. "West Texas and New Mexico will need to build additional gathering capacity. A lot of new compression also is needed."
For more on the North American gas infrastructure buildout, see January 29, 2020, article - Houston Outlook: North American Gas Infrastructure Buildout Continues.
As an example of the growing imbalance between gas production and gas infrastructure in the Permian Basin, Mullins said the 2 Bcf/d Gulf Coast Express Pipeline was filled completely within a month, leaving producers to wait for more pipeline capacity. The imbalance is also shown in the sharp rise of gas flaring and venting in the Permian. Flaring in that basin reached an estimated 293 billion cubic feet (Bcf) in 2019, up sharply from the 97 Bcf that area flared or vented in 2013, according to data compiled by Reuters.
Click on the image at right to see gas flaring and venting for the Permian, Bakken and the U.S. as a whole from 2013-2019.Gas flaring and venting has also soared in the Bakken formation in recent years, though not quite as fast as in the Permian. For more on flaring and venting in the Bakken, see January 7, 2020, article - New Order May Quicken Construction of O&G Infrastructure in North Dakota.
Both North Dakota and Texas have rules to limit flaring or venting, but they have been reluctant to penalize producers when flared or vented volumes exceed limits.
The Permian infrastructure problem is unlikely to be solved this year. There are nearly $30 billion of proposed gas processing and pipeline projects in the Permian that are scheduled to begin construction in the Permian between January 2019 and December 2020. But none of those projects are scheduled to begin operating this year.
Although there is enough pipeline capacity in the Permian to transport so-called dry gas for the next few years, according to oil and gas data firm Enverus, when associated gas, which is produced as a byproduct of oil extraction, is added, the outbound pipeline capacity will be insufficient for the next several years.
Click on the image at right to see a chart projecting dry gas production, wet gas production and outbound pipeline capacity in the Permian through yearend 2023. "Developers and producers face a couple of tough years in the Permian," Mullins commented. "Efficiency gains have resulted in the production of a lot more gas with a lot fewer rigs, and there are end markets that want that gas, but getting it from the field to the market continues to be an elusive balancing act."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
