Oct. 28–Filled-to-capacity pipelines that move Permian Basin crude, natural gas and natural gas liquids to the marketplace are just part of the region’s takeaway capacity issues.
That was the message speakers at a panel discussion had for members of the Permian Basin Petroleum Association at its 56th annual meeting Thursday at the Petroleum Club.
Scott Potter, managing director of business development with RBN Energy, said that while natural gas production in the Permian has risen to 8.5 billion cubic feet since 2010, production in the Marcellus Shale has climbed from 2 Bcf to about 29 Bcf in that same time and is projected to approach 49 Bcf in the coming years.
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A good portion of that natural gas will be headed to the Gulf Coast, Potter said, meaning Permian Basin producers will have competition from Marcellus producers for room on natural gas pipelines.
“There’s not enough storage for natural gas. You have to produce it,” he said.
The only solution is to promote exports of liquefied natural gas from Gulf Coast terminals to meet growing global demand for natural gas, Potter said. The issue is that those terminals take five years and about $10 billion to build, and they can’t be built until natural gas producers sign 20-year contracts.
“They don’t want to sign 20-year contracts,” he said.
Another hope is for a bitterly cold winter, which will draw down natural gas supplies, said Matt Teegarden, vice president, commercial development with Crestwood Midstream.
He said expanding pipeline capacity out of the Permian Basin is only part of the solution. Another issue is insufficient fractionation capacity once the product reaches the Gulf Coast. Just as midstream companies are building new pipelines and expanding capacity on existing lines, so are companies adding capacity to their fractionation units.
“The gap is not as significant as you might think,” Teegarden said, adding that new pipeline capacity will not be completely filled at first, allowing more time for additional fractionation capacity to come online. He said fractionators are being built not just to accommodate Permian Basin production but also production from other regions, including the SCOOP/Stack in Oklahoma.
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Trafigura estimates Permian Basin breakeven prices at $35 to $40 a barrel, and with West Texas Intermediate prices presently well above that mark, “resources can and will continue to see investment,” said Corey Prologo, director of Trafigura North America.
The issue is domestic refineries are maxed out for processing light crude, which dominates Permian Basin production, and it would require billions in investment for U.S. refineries to process additional light crude, he said.
That’s why the export market is so important but expanding takeaway capacity from the Permian Basin runs the risk of shifting that bottleneck to the Gulf Coast, Prologo said. If U.S. production rises to the levels analysts forecast, it would require more than 600 Very Large Crude Carriers to carry that additional production to overseas markets. But the U.S. does not have enough capacity to handle the VLCCs that can carry up to 2 million barrels of crude, he said.
That’s why Trafigura has formed its Texas Gulf Terminals, for which Prologo serves as director, and plans to build an offshore deepwater port facility comprised of a single-point mooring buoy system that would transfer crude to a VLCC and with the capacity to serve eight VLCCs per month.
“The inability to export” will hamper production growth and development, he said.
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