Permian basin producers are on track to double oil production by 2025 and with it, double associated natural gas production. Gas pipeline infrastructure, meanwhile, is already maxed out with regional prices trading negative late in 2018.
Gas takeaway capacity from the Permian does show some promise to increase, however, with two greenfield projects now under construction: the Gulf Coast Express Pipeline (GCX) and the Permian Highway Pipeline (PHP). Both projects, scheduled to enter service in October and in late 2020, respectively, are each designed to transport about 2 bcfd of gas from Waha, Tex., to the Texas Gulf Coast and Mexican markets.
Will these projects be enough to meet production growth over the next 5 years? How many of the other additional pipeline projects, in various stages of development, will be required? And where will the demand be to meet this stronger production growth?
These questions and others were debated early last month during a panel discussion at CERAWeek by IHS Markit in Houston.
Keeping pace
To keep pace with the growth of gas production from the Permian, industry would practically need a “pipeline a year” constructed the size and capacity of the PHP and GCX for the next 3-5 years, said panelist Cynthia Walker, senior vice-president, marketing and midstream operations and development, Occidental Petroleum Corp.
With regard to takeaway capacity, Walker noted that industry is in “uncharted territory.” By the end of 2020, producers will only have the capacity to move 4 bcfd of gas out of the basin, she said. “We have no idea what moving 20 bcfd will look like, much less the connectivity that we would like to see,” she said, speaking of the expected growth in production. Also, she said, storage would then become “critical” along Gulf Coast to manage the eventual supply growth.
A second panelist, Tom Martin, president, natural gas pipelines group, Kinder Morgan, said that any pipeline between 2020-23 will have to be “producer-push.” Also, Martin said that demand for gas from Mexico will not be a significant enough quantity, reaching only 500 MMcfd.
Walker noted that even with Mexico making a transition of electric power generation to gas, Oxy is not relying on the change as a panacea to save the basin. She also noted that beyond 2019, the next pipeline to be built must source an LNG project.
Matt Schatzman, president, Next Decade, and a third panelist, said the speed of development of pipelines is faster than what can be developed via LNG projects. “Besides, oil is driving the economics of the Permian, not LNG,” he said, adding that for a long-term solution, a lot has to happen. He noted two specific LNG projects: the Freeport LNG export facility (four trains) and the Cheniere Corpus Christi LNG export facility (two trains).
Schatzman said just as the Marcellus drove the first wave of LNG exports from the US, it’s Permian tight oil that is driving the second wave.
Going west
When asked about gas demand along the US West Coast for Permian gas, the panelists agreed that gas demand in California, as an example, is relatively stagnant. LNG demand along the west coast of Mexico, however, might be worth considering. Also, they said, shipping congestion in the Panama Canal is something to worry about. Getting LNG to Mexico will cost more in pipeline transportation, but less in waterborne shipping, they agreed.
Schatzman noted that the Panama Canal was not the solution for LNG. LNG must remain competitive “the long way around,” he said. Also, the West Coast has advantages to getting LNG to Asian markets, he noted.
