The rapidly growing amount of associated gas from the Permian Basin may start swamping gas produced in other parts of the country, with the Rockies in line to take the brunt of the blow.
Within five years, the Permian could be adding more associated gas to the current U.S. stream than the Marcellus and Utica shales combined, BTU Analytics' Matthew Hoza said during a presentation May 22 at an Argus Media conference in Houston. Transportation bottlenecks could prevent the gas from going directly to the high-demand Gulf Coast, causing problems to the north and west of the basin, which is centered in West Texas.
According to projections, said Hoza, a senior energy analyst at BTU, the Marcellus and Utica could contribute as much as 7.5 Bcf/d more to the nation's supply by 2023. Permian oil producers, on the other hand, could add 8 Bcf/d of associated gas above current levels, pushing its total up to nearly 15 Bcf/d. Even in a conservative scenario, the play could be producing 24.5 Bcf/d of gas by 2028, he said.
"That is a lot of associated gas that will have to find a home," Hoza said.
The natural home for Permian gas would be the Gulf Coast, where demand is increasing as more LNG export facilities come online. One major problem prevents this natural solution: a lack of pipeline capacity, limiting the amount of gas moving out of the Permian heading east at approximately 4.5 Bcf/d. That situation, Hoza said, could last for another year or longer.
"This issue can extend for much longer than people are thinking right now," he said. "In 2019, we're expecting this Permian associated gas situation to come to a head. … It's pushing in every direction."
One direction Permian gas supplies can go is south, with Mexico demanding more natural gas as its own production drops while demand is rising quickly. Hoza said there could be 4 Bcf/d worth of cross-border takeaway capacity, but he estimated that Mexico's effective takeaway capacity once away from the border drops to around 1.8 Bcf/d. "We expect exports in the next five years from the Permian to Mexico to increase by 1 Bcf/d, but that probably won't be a solution," he said.
That means Permian gas will be forced to move north and west, operating on pipelines that have been reversed over the past couple of years.
This would mean disaster for Rockies producers, which include major independents Anadarko Petroleum Corp. and Noble Energy Inc. "With Permian production, we've already seen all of the Rockies production displaced," Hoza said. "The Rockies are stuck between a rock and a hard place, with Permian gas and pretty stubborn gas from western Canada pushing into the same markets."
Even if Permian gas moves in all directions away from the play, it appears that demand will outpace takeaway capacity to the point where even producers the Permian are in a tough spot. "Waha outright pricing could be on the average of 80 to 90 cents [per MMcf]," Hoza said. "At some point, we're going to have so much associated gas coming out of the [Permian] that we won't be able to put one more molecule in a pipeline. We're looking at shut-ins of wells."
