Working To Solve the Permian Gas Conundrum

Abstract

Reflecting on oilfield history as a whole, it wasn’t all that long ago that natural gas was treated more like a nuisance than a commodity, either an undesirable byproduct of an oil discovery or a letdown when it was encountered in a well instead of the targeted black gold. It can complicate things when an operator is drilling for oil, especially during periods like now when crude prices are robust, but gas prices aren’t. Additionally, when oil is discovered, it often comes with associated natural gas. When producers turn the taps to get that oil into sales lines, the gas can be problematic if the limited takeaway capacity for transporting it is already stretched. This is the current situation for many operators in the prolific Permian Basin of west Texas and south-east New Mexico. Infrastructure constraints to ship natural gas out of the Permian combined with high storage levels due to a relatively mild winter are wreaking natural gas pricing in the region. Natural gas prices at the WAHA hub located near Fort Stockton, Texas, were below zero—negative $4.60/MMBtu as recently early May. Not only did that mean that produced gas in the region was basically free, but the negative price also meant producers trying to move gas out of the region would have to pay someone extra to do it. That’s not good business. Of course, anyone looking to chase that offer would find no pipeline capacity to move the product. The US Energy Information Administration (EIA) said in December 2023 that production of associated natural gas has nearly tripled since 2018 in the three top-producing tight oil plays in the Permian region. Associated natural gas from the Wolfcamp, Spraberry, and Bone Spring plays averaged a combined 13.7 Bcf/D in the first 7 months of 2023, up from an average of 4.7 Bcf/D in 2018, according to data from Enverus. Associated natural gas production has grown due to increases in both crude oil production and the volume of natural gas per barrel of oil that a well produces, the gas/oil ratio, among the oil wells in these three plays. The cavalry is on the horizon, however. A handful of high-capacity Permian natural gas export projects are moving through various stages of development and aim be operational over the next few years. First up is the giant Matterhorn Express pipeline, which will move gas from west Texas to Katy, Texas (just west of Houston) and connect with other pipelines. The project, led by WhiteWater Midstream, EnLink Midstream, Devon Energy, and MPLX, is roughly 80% complete and should come online in the second half of this year. Energy Transfer’s Warrior pipeline is loading up on transport commitments and will move gas from the Permian to the Gulf Coast. This system is on track for a potential late-2024 final investment decision (FID).