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Permian Basin Gas Production Pushes Limits – Infrastructure Expansion Needed
10/29/2024
The rapid growth of natural gas production in the Permian Basin is pushing existing infrastructure to its limits, and additional pipeline projects are on the horizon to meet rising demand, according to East Daley Analytics. Despite ongoing price volatility—marked by repeated declines—demand for expanded energy markets continues to surge.
“The energy industry is playing catch-up,” said Nigel Gorbold, Vice President of Commercial and Consulting at East Daley Analytics, during the Hart Energy A&D Strategies and Opportunities conference on Oct. 23. "We have a long way to go to align infrastructure with production growth, and more pipelines will be needed as power demand keeps rising."
Permian Basin production has grown dramatically, surpassing 10 billion cubic feet per day (Bcf/d) in 2018 and more than doubling to 21 Bcf/d by 2022, according to the U.S. Energy Information Administration (EIA). This surge in output has frequently led to capacity constraints, with operators facing choices like flaring gas, paying to dispose of it during negative pricing events, or cutting crude production.
The recent launch of the Matterhorn Express Pipeline, developed by a joint venture led by WhiteWater Midstream, offers some relief. Beginning operations in early October, the pipeline can transport up to 2.5 Bcf/d of natural gas from the Permian to Katy, Texas. Within its first month, the pipeline reached 1.5 Bcf/d of capacity, and East Daley predicts it will be full by mid-2025. Yet even with this new capacity, gas prices in the region remain unprofitable, with prices falling to zero again in late October due to maintenance work and an oversupplied market.
“Just reaching the Houston Ship Channel doesn’t guarantee gas sales,” Gorbold noted, emphasizing that additional infrastructure is essential to fully clear the market. The next major pipeline, Blackcomb, is slated to start service in 2026, while Kinder Morgan recently announced the Trident Pipeline, which will move gas east from Houston to the Port Arthur area, where three LNG export terminals are under construction.
East Daley's forecasts highlight an upcoming surge in gas demand, driven by both LNG exports and domestic energy needs, including increased power consumption from AI and data centers. By 2030, AI-related demand alone could require an additional 3.9 to 7.4 Bcf/d of natural gas. “The wide range reflects potential challenges in pipeline connections, grid integration, supply chain issues, and delays in securing components like transformers and AI chips,” Gorbold explained.
As the U.S. energy market navigates these dynamics, efforts to stabilize baseload power—essential for intermittent renewables like wind and solar—add another layer of complexity. The Gulf Coast region has begun adjusting to meet the growing LNG demand, while other areas, like Appalachia, lag due to resistance against infrastructure development.
Still, Gorbold remains optimistic about the long-term outlook: "The combined demand from LNG exports and data centers is the rising tide that can lift the entire U.S. gas market."
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Occidental, CrownRock Merger Under Regulatory Review: 2024 Update
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CrownRock's 94,000+ net acres acquisition complements Occidental's Midland Basin operations, valued at $12.0 billion. This expansion enhances Occidental's Midland Basin-scale and upgrades its Permian Basin portfolio with ready-to-develop, low-cost assets. The deal is set to add around 170 thousand barrels of oil equivalent per day in 2024, with high-margin, sustainable production.
Cold Weather Disruptions Lead to Lower US Natural Gas Production in January 2024
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In January, US natural gas production dropped to 102 billion cubic feet per day (Bcf/d) from December's record of 106 Bcf/d due to bad weather. The Energy Information Administration (EIA) expects it to recover soon, hitting 105 Bcf/d by March. The EIA's outlook for 2024 predicts an average production of about 104 Bcf/d, slightly down from the earlier forecast of 105 Bcf/d. By 2025, production is anticipated to climb over 106 Bcf/d.
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