Permian gas production under threat by end of 2023 as intermediate capacity shrinks

Strong points

Stump gas production averages 13.8 Bcf/d in 2022

Number of drilling rigs, new drilling, acceleration of well completions

Pipelines and local demand support growth at 17-18 Bcf/d

Long-haul Permian Basin gas pipelines could reach capacity as early as late 2023, posing downside risk to base prices and production in West Texas and New Mexico, analysis says recently published by S&P Global Commodity Insights.

Not registered?

Receive daily email alerts, subscriber notes, and personalize your experience.


Register now

According to analysts and industry watchers, the Permian Basin already has enough pipeline capacity to support near-term growth in crude oil and NGL production. Despite this, the trail for the gas seems less and less certain. Discussion and debate about the potential need for additional gas transport capacity from the Permian began even before the MPLX consortium announced the start of commercial service last summer on the most recent basin expansion: the 2 Bcf/d Whistler pipeline.

More recently, however, gas production from the Permian Basin has shown little propensity for growth, potentially even calling into question the immediate need for additional outflow capacity.


Through mid-April, gas production averaged just under 13.8 billion cubic feet per day, down about 140 million cubic feet per day from its average. of the fourth quarter of 2021, according to data from S&P Global. Earlier this winter, Permian production suffered a series of disappointing setbacks caused by wellhead freezes that have been particularly severe in Texas and the Midcontinent this year. After rebounding to a record high of 14.3 billion cubic feet per day in mid-February, Permian gas production fell again.

This seemingly directionless trend for Permian production, however, may be coming to an end, thanks to a recent and steady uptick in drilling and upstream activity in western Texas and New Mexico.

Drilling

In 2022, Permian operators continued to expand their drilling footprint with the addition of nearly 40 rigs since early January. As of the end of the week of April 13, the number of Permian platforms is now estimated at 337, marking its highest level since April 2020, according to data published by Enverus.

In March, around 362 new wells were drilled in the Permian – also the most since the first quarter of 2020, according to new data released on April 18 by the US Energy Information Administration. Over the past four months, well completions have also increased, reaching 433 in March to reach their highest level in 12 months, according to the latest EIA drilling productivity report.


Output capacity

Based on recent activity, S&P Global’s Permian production forecast now shows that production will increase by up to 2 Bcf/d this year, potentially approaching 16 Bcf/d in early 2023. While production is expected to increase more slowly next year, it could still reach 17 Bcf/d. Bcf/d by the fourth quarter, based on current projections.

With midstream capacity currently estimated at 17 Bcf/d – including haul capacity to the north, west, east and Mexico – analysts expect base price disruptions, flaring and other downward pressure on gas production could begin as early as winter 2023-2024.

Over the past few months, the gas futures market has already started pricing Waha accordingly. While the forecast base is down in all areas, the fourth quarter of 2023 was the most affected. As of mid-April, Waha Q4-2023 base is now priced at $1.70/MMBtu for Henry Hub – down from just 62 cents in mid-December, according to Platts M2MS futures gas data.

About Keith Tatum

Check Also

8 dividend aristocrat leaders to buy now with the stock market poised to explode – 24/7 Wall St.

The writing is on the wall, and seasoned investors know it. Anytime you have a …