Permian Gas Output Strong, But Prices Weak: EIA
The US Energy Information Administration (EIA) said March 29 that natural gas output from the Permian Basin in Texas rose 86% between March 2014 and March 2018, but the lack of pipeline capacity out of the basin is holding Waha hub prices lower.
In March, the EIA said, Permian gas production – half of which is associated with Permian shale oil production – averaged 10bn ft3/day, up from 5.4bn ft3/day in March 2014. Over the same four years, Permian oil production more than doubled, to 3.1mn b/day from 1.5mn b/day.
Despite the strong output gains, Permian gas prices are not keeping pace, largely because of a lack of pipeline takeaway capacity from the Waha hub, which serves the basin. Between March 2014 and the beginning of March 2018, Waha gas traded at a discount of $0.13/’000 ft3 to Henry Hub; between March 1 and March 27 this year, the differential widened sharply, to an average of $0.76/’000 ft3, the EIA said.
Without sufficient takeaway capacity, Permian producers have limited options for their gas; flaring is one, but the Texas Railroad Commission has strict rules that limit flaring; some gas can also be reinjected, but the use of this option is limited by reservoir characteristics.
Several pipeline projects are in the works to take Permian gas to the US Gulf Coast, but the earliest any of those will be operational is Q3 2019, when Kinder Morgan’s 1.98bn ft3/day Gulf Coast Express Project and NAmerico Energy’s 1.9bn ft3/day Peco Trail Pipeline are expected to go into service. Sempra LNG & Midstream’s 1.7bn ft3/day to 2.25bn ft3/day Permian-Katy Pipeline is expected in service a year later, while Tellurian’s 2bn ft3/day Permian Global Access Pipeline won’t be complete until late 2021 or early 2022.