New report details infrastructure constraints as drilling prepares to ramp up
In the latest instalment of its Fundamental Edge market outlook series, Drillinginfo has released an interim report on what has become the most watched oil and gas basin in the US, the Permian Basin in West Texas/Southeastern New Mexico.
The Permian is arguably the hottest oil play in the US right now and for good reason: it boasts the best economics, has tremendous stacked pay potential, and producers are still realizing efficiencies from further delineation of the plays, well completion advancements, and longer laterals.
Yet, infrastructure constraints could prevent the Permian from delivering oil, natural gas, and natural gas liquids (NGLs) to end markets, and prevent it from experiencing its full economic and energy potential.
Key Findings from the Report:
- Crude oil production will outpace takeaway capacity in the Permian Basin by the end of 2017 if flex capacity (quick, cheap capacity additions via pumping station installs on existing pipelines) is not brought online to accommodate the production growth. The Midland-to-Sealy pipeline will provide additional capacity by mid-2018, but even with the new pipeline and full additional flex capacity build-out, the Permian Basin will still need additional takeaway capacity by 2020. Any delay in capacity additions, or additional drilling activity that further increases the rate of production growth, could lead to widening differentials for crude oil produced in the basin until capacity becomes available.
- Cryogenic natural gas processing capacity is adequate to handle gross gas production from the Permian Basin through mid-2019. However, due to the disconnect between the location of the processing capacity and the geographical extent of the current production growth, additional processing capacity may be necessary in quickly growing gas producing parts of the Permian Basin (southern Delaware Basin in particular). To accommodate the projected wet gas volumes from new discoveries in the southern Delaware Basin (ex: Apache’s Alpine High), there will need to be local processing capacity built.
- At first glance, dry gas takeaway is adequate to handle Permian production in the foreseeable future. However, the capacity that serves the Permian Basin also gathers from other markets – both upstream and downstream of the basin – and connectivity from the Midland is much more extensive than connectivity from the Delaware. Hence, not all capacity may be available for Permian Basin gas, and not all existing capacity is located where production is growing. The Delaware Basin is more gas-rich than its Midland Basin counterpart, and there will need to be additional takeaway capacity and connectivity within the basin. Additionally, if the development of southern Delaware Basin gas-directed activity is as prolific as suggested by recent discoveries, the growth trajectory could be much steeper, further exacerbating the bottlenecks.