Permian Gas to Rise, But Takeaway Constraints Remain: Rystad

Norwegian consultancy Rystad Energy said July 28 it expects associated gas production from the Permian basin in the US will recover quickly in the second half this year, but uncertainty regarding future pipeline developments out of the basin could lead to increased flaring after 2023.

In Rystad’s base case forecast, which assumes benchmark West Texas Intermediate (WTI) crude prices in the $45-$50/b range, Permian gas production will rebound to 11.4bn ft³/day in September, with substantial additional growth by the middle of next year. By the end of 2023, output should reach 16bn ft³/day, Rystad says, about 2bn ft³/day lower than its original pre-Covid forecast for end-2023 production.

But in a post-Covid environment, Rystad said, there may be little appetite for new or continuing infrastructure investments, which could constrain the development of additional takeaway capacity from the Permian.

Both Kinder Morgan’s 2.1bn ft³/day Permian Highway Pipeline (PHP), from Waha to the US Gulf Coast, and WhiteWater Midstream’s Whistler project, a 2bn ft³/day conduit extending from West Texas to the Gulf Coast, with announced in-service dates of Q2 2021 and Q3 2021, are moving ahead, Rystad says.

But the future of other pipelines out of the Permian remain cloudy: both the 2bn ft³/day Pecos Trail pipeline and the Sempra LNG-led Permian-to-Katy (P2K) project, also 2bn ft³/day, appear to be stalled, while Tellurian’s Permian Global Access Pipeline, part of the hub development surrounding the Driftwood LNG project, remains subject to a final investment decision by Tellurian – unlikely in the short term.

“On paper, the nameplate outbound capacity of all takeaway pipelines with local consumption (assuming the completion of the Whistler and PHP) will reach 17.5bnft³/day in 2022, enough to accommodate the increasing gas production in the basin through the mid-2020s,” Rystad says. “However, the future of utilisation rates on the Permian-Mexico pipelines remains uncertain.”

Between May 2019 and April this year, exports from West Texas to Mexico fluctuated in a narrow range between 580mn ft³/day and 670mn ft³/day. In its most optimistic scenarios, Rystad sees West Texas-Mexico exports growing to 1.5bn ft³/day by late this year or early next year, but its lower-case scenarios suggest flows could just as easily remain flat at around 700mn ft³/day.

“Regardless of the state of West Texas-Mexico exports, we conclude that in a $45-$50 WTI world, there will be a need for new gas takeaway projects from the Permian as early as 2023-2024,” Artem Abramov, Rystad’s head of shale research said. “If these projects are not approved early enough, the basin might end up with another period of degradation in local differentials and potentially increased gas flaring.”