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Denver — Markets are expecting lower gas prices to return to the Permian Basin next year as surging production overwhelms West Texas again before key midstream capacity expansions enter service in 2021.

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Commodities 2020 | S&P Global Platts

Over the past 10 months, the 2020 forward curve at Waha has witnessed a steady decline, with shoulder-season prices for April and May tumbling into the low 30 cents/MMBtu area -- down from more than $1.70/MMBtu as recently as the first quarter, S&P Global Platts data shows.

That evolution has tracked the market's optimism for the basin's production growth potential, but also its doubts over producers' capacity to efficiently move that supply to market next year.

Following the September 25 start-up of Kinder Morgan's 2 Bcf/d Gulf Coast Express Pipeline, Permian producers have responded with a staggering 1.3 Bcf/d, or 12%, surge in output.

In December, Permian production has averaged nearly 11.8 Bcf/d and continues to test record levels at over 12 Bcf/d, data from Platts Analytics shows.

As production edges upward, market jitters over midstream constraints in 2020 have reemerged -- especially following recent third-quarter earnings calls when executives at Kinder Morgan announced a three-month delay to the start-up of the company's 2.1 Bcf/d Permian Highway Pipeline.

Regulatory approvals for the project, which have been slower to come than previously anticipated, have now delayed the pipeline's estimated in-service date to the first quarter of 2021.

In its most recent update, Kinder said construction on the western spread of the project had already begun near Waha and that the pipeline had secured about 85% of its required right-of-way.


According to a midstream analysis from Platts Analytics, the Permian's effective production takeaway capacity maxes out around 12 Bcf/d. Including an estimated 700 MMcf/d absorbed by local demand, producers in West Texas could push output to about 12.7 Bcf/d, at which point in-basin cash prices are likely to turn negative again, as they did sporadically from March through October 2019.

The wider West Texas-Gulf Coast price spreads implied by a negative Permian cash market, though, could ultimately see takeaway capacity expand to about 12.7 Bcf/d as shippers max out spare and interruptible capacity, particularly on intrastate pipelines.

Under that scenario, total Permian output could reach as high as 13.5 Bcf/d prior to the start-up of new midstream projects, according to high-side estimates from Platts Analytics.


The recent delay of the Permian Highway Pipeline raises serious doubts for market observers over the Permian Basin's capacity to continue growing oil and associated gas production next year.

One potential outlet for incremental production in 2020 could come from the start-up of a distant pipeline project in central Mexico that could enter service as soon as the first quarter of 2020.

The nearly 890 MMcf/d Villa de Reyes -- Aguascalientes -- Guadalajara pipeline segment forms the southernmost component of Fermaca's Wahalajara pipeline system -- a privately developed network designed to move US gas from West Texas to central Mexico.

When the project enters service, Platts Analytics expects that as much as 380 MMcf/d of incremental Permian production could flow from Waha to the border on the Roadrunner Gas Transmission Pipeline and the Trans-Pecos Pipeline.

Following the start-up of the Wahalajara system, Permian operators could wait another year before capacity on the Permian Highway project enters service in Q1 2021.

An FID on the 2 Bcf/d Whistler Pipeline in June by developers, MPLX, WhiteWater Midstream, Stonepeak Infrastructure Partners and West Texas Gas, means that Permian producers can bank on combined midstream capacity growth of at least 4.1 Bcf/d in 2021. The 42-inch diameter, 475-mile Whistler Pipeline will deliver gas from multiple upstream locations around the Waha Hub, to the Agua Dulce area in South Texas. The project will also source gas directly from processing plants in the Midland Basin via a 50-mile, 30-inch diameter pipeline lateral, among other interconnections.

A second project announced by WhiteWater Midstream and MPLX in November, looks to expand capacity of the Agua Blanca intrastate gas pipeline system to 3 Bcf/d from 1.4 Bcf/d. While that project will improve downstream optionality and intra-basin connectivity in the Delaware Basin of West Texas, no start-up date for the project has yet been announced.

Beyond the aforementioned expansions, at least four additional production-supporting pipeline projects with early 2020s start-up dates have also been proposed by developers -- none of which have reached a positive final investment decision yet.

Commodities 2020 | S&P Global Platts

--J. Robinson,

--Edited by Jonathan Loades-Carter,

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