August 2022, Vol. 249, No. 8


Permian Basin Midstream Expands to Deliver More Gas to the World

By Jeff Awalt, Executive Editor

(P&GJ) — The world needs more natural gas, and the Permian Basin is gearing up to deliver it with a flurry of midstream projects that will expand gathering and processing infrastructure and add an expected 6 Bcf/d of pipeline takeaway capacity within the next two years.

Pipeline capacity additions have debottlenecked crude oil, natural gas and natural gas liquids (NGL) egress from the basin, with oil pipelines still underutilized after a multi-year building spree that concluded just as the global COVID-19 lockdown crushed demand.   

A recent upbeat note on the 600,000-bpd Epic Crude Oil Pipeline, completed in 2020, said it is shipping a record-high 500,000 bpd in 2022 on the 700-mile route from the Permian’s Orla, Texas, hub to the Port of Corpus Christi, Texas.  

But that’s a rarity. In contrast with natural gas, crude oil pipeline takeaway from the Permian still substantially exceeds production. As of July, there was about 8 MMbpd of oil pipeline capacity from the Permian but less than 5.5 MMbpd of production, according to the U.S. Energy Information Administration and Morningstar.  

Still, higher commodity prices and stronger domestic and export demand are driving midstream infrastructure expansion as natural gas production in the Permian Basin is at record highs, and producers appear keen to stay ahead of future bottlenecks as growth continues.   

First to Market  

Earlier projections called for natural gas egress from the Permian Basin to become constrained by year-end 2023, but more recent projections indicated that would more likely occur before the end of this year. In fact, with Waha trading at a 10% discount to Henry Hub by the second quarter, it’s pretty clear that capacity is already being squeezed.   

Accordingly, a new round of natural gas midstream expansion is underway and taking a more aggressive tack than many previous buildouts, with competing operators prioritizing speed through a mix of brownfield and hybrid greenfield/brownfield projects. But one significant greenfield project is also moving ahead after an FID.  

The ability to quickly ramp up oil and gas production and expand pipeline capacity via intrastate connections to domestic and export demand centers makes the Permian Basin a top early responder to increasingly critical global demand after Russia’s invasion of Ukraine upended already stressed energy markets.  

“There is no question that the United States has significant oil and gas resources that are low-cost and that are situated in a more stable kind of marketplace,” Eugene Kim, research director for Americas Gas Research at Wood Mackenzie told P&GJ.   

“We’ve definitely showcased the Permian’s ability to grow oil production in the past, and now we’re seeing that we can grow production fast and furious on the natural gas side too,” Kim said.  

The accelerated development trend helped generate fresh competition for Kinder Morgan’s proposed greenfield Permian Pass project, which had come back into consideration by late 2021 after being postponed when demand plunged in 2020.   

Permian Pass, like Tellurian’s now-shelved Permian Global Pass project, differed from other Permian natural gas projects being marketed to Permian producers by targeting LNG export demand centers developing along the Southeast Texas-Louisiana coastal border, rather than to LNG export centers such as Corpus Christi located farther down the Texas coast.  

That added distance, however, takes longer and cost more to construct than projects built directly to the Texas Gulf Coast, much less the incremental compression expansions that can strike while prices and demand are high.   

The race toward compression expansion became public in February, when MPLX Chief Commercial Officer Timothy Aydt told investors during a conference call that the partnership was seriously considering a 500,000 Mcf/d expansion of its Whistler Pipeline joint venture with WhiteWater Midstream, WTG and Stonepeak. The 450-mile (724-km), 2 Bcf/d Whistler project had only been in full commercial service for about six months at the time.   

“As we continue to extend up into the Midland Basin, we’ve essentially tapped out some of the existing capacity, and we’ll be looking to grow that capacity on Whistler overall,” Aydt explained on the call. The project could come online in late 2023, he said.   

Kinder Morgan more recently greenlighted the financing of a 570 MMcf/d compression-based capacity expansion on the 426-mile, (689-km) Permian Highway pipeline completed in 2020 with Kinetik Holdings and Exxon Mobil.   

“Compression expansions are low-risk from a siting and permitting perspective, and they are very capital efficient, although they do come with a higher fuel rate for the customer,” Kean said.   

Most importantly in today’s environment, he emphasized, compression expansions allow for speed to market. The project was approved in June and is expected to reach in-service within about 18 months, Kean said.  

“We believe the market will need that capacity in that timeframe and see (the compression) expansions as the near-term solution, pushing out our potential greenfield third pipeline (Permian Pass) further in time,” he said.  

Class of ’24  

Unlike the Whistler and Permian Highway compression expansions, Energy Transfer’s proposed Warrior Pipeline project is a combination greenfield/brownfield project that could provide access to LNG export hubs across the Gulf Coast by building a new pipeline from the Permian Basin that will connect with Energy Transfer’s existing intrastate pipeline system.  

The approach would allow Energy Transfer to add significant new Permian-to-Gulf Coast capacity without the time and expense of the longer pipeline. Although it has not yet reached FID, it appears to be the most economical of publicly known options, and Energy Transfer already received regulatory approval in May, a potential sign of commitment to the project.  

Energy Transfer has not announced a planned capacity for construction of the new 325-mile pipeline from the Upton/Midland counties border to Ellis County, south of Dallas. It’s 42-inch diameter, however, would suggest a capacity in the ballpark of 2 Bcf/d. Though unconfirmed, P&GJ sources project a targeted 2024 startup.  

After a somewhat stealthy marketing period, EnLink Midstream announced the 2.5 Bcf/d Matterhorn Express Pipeline on May 19 after already securing sufficient transportation agreements with shippers to move ahead with financing of the greenfield project.  

A joint venture of EnLink, MPLX, Devon Energy and Whitewater, Matterhorn Express is a planned 490-mile (684-km), 42-inch pipeline that will extend from Waha to Katy, Texas, west of Houston. It is expected to be in service in the third quarter of 2024.  

“Matterhorn will provide premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes,” said Christer Rundlof, CEO of Austin infrastructure company Whitewater.   

Natural gas supplies for the pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX.  

Although LNG facilities on the Gulf Coast are currently operating at maximum production levels, WoodMac’s Kim said the announced natural gas pipeline expansion and construction projects from the Permian will not create an excess capacity because it is needed to accommodate expected near-term growth in U.S. industrial and power generation demand, as well as growing demand for piped gas exports to Mexico.   

Three new natural gas export pipelines to Mexico added 3.1 Bcf/d of capacity in 2016-17, including the Trans Pecos, Roadrunner and Comanche Trail.  

Creative G&P  

Crude oil has always been the primary target of drilling and production in the Permian Basin, with associated natural gas historically viewed by many producers as a residual nuisance to reckon with. Stricter rules on venting and flaring, along with globalization of gas trade and higher gas and NGL prices, have elevated the value of natural gas.  

With natural gas production at record highs and rising, natural gas gathering and processing (G&P) infrastructure has been one of the fastest-growing areas of midstream construction in the area. Some midstream companies have found creative ways to manage costs while expanding G&P capacity on pace with rising demand.   

For some companies, that has included purchasing and relocating existing gas processing plants, rather than constructing new facilities, notes Ryan Smith, senior director of Advisory Services at Denver-based East Daley Capital,   

“We’re seeing this with some of the bigger companies that are buying plants and systems in underutilized basins like the Barnett Shale where these plants are idle,” Smith said. “They’re bypassing a lot of supply chain issues and managing their expansion costs, and it gives them a runway for growth as Permian production ramps up.”   


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