As negative natural gas prices plague the Permian Basin, one of the play’s largest privately held midstream firms is seeking to alleviate takeaway constraints to generate value for oil producers.
“The Permian is in desperate need of additional gas gathering and processing capacity to support producers’ robust drilling programs and the associated gas that comes along with the region’s crude oil,” Brazos Midstream CFO William Butler told NGI.
Brazos is in the process of adding 500 MMcf/d of gas processing capacity and 175 miles of gas gathering capacity by the end of 2025 in the Permian’s Midland sub-basin.
Projects include the mechanically complete 200 MMcf/d Sundance I processing plant in Martin County in West Texas, Butler said. Sundance “will allow us to handle near-term volumes while improving producer netbacks, reducing regional bottlenecks, and ensuring more gas can be efficiently treated and transported to premium end markets.
“But we recognize that future processing capacity is also needed, and our recently announced 300 MMcf/d processing plant that is scheduled to come online in 2025 ensures Brazos is able to accommodate future volumes as well.”
With Permian oil and associated gas production at record levels, fixed natural gas prices at the Waha hub in West Texas have traded recently in negative territory, meaning producers must pay offtakers to receive physical gas deliveries.
NGI’s daily Waha spot price averaged an abysmal negative $4.760/MMBtu on Friday (Aug. 30). In relation to U.S. benchmark Henry Hub, the Waha forward basis price for September delivery averaged minus-$2.964 the same day.
“Strengthening Permian natural gas basis differentials from an infrastructure standpoint requires a multi-faceted approach,” Butler said. “Expanding processing capacity is critical; by building more processing plants, we can ensure that the increasing volumes of natural gas can be efficiently treated and prepared for transport, reducing the oversupply that can drive down prices.”
In addition, “developing more gathering and takeaway pipelines is essential. Expanding the network of pipelines that connect Permian gas to major markets will help alleviate local oversupply and improve basis differentials,” Butler said. “This includes not only local gathering systems but also larger interstate pipelines that can move gas to regions like the Gulf Coast or the Midwest, where prices tend to be more favorable.”
Management teams of leading Permian producers, such as Diamondback Energy Inc. and Devon Energy Corp., also have stressed the urgency of adding gas infrastructure to ease takeaway bottlenecks.
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“There is a lack of gathering, processing, and residue takeaway capacity in the Permian which is primarily due to the rapid pace of production growth outpacing the development of necessary midstream infrastructure,” added Butler.
“We see some of these constraints going away once the Matterhorn Express Pipeline comes online later this year, but we expect for bottlenecks to return by 2026 as drilling continues to become more efficient and new production comes online.
“These near- and longer-term constraints create volatility and limit the ability to fully capitalize on production growth.”
The recently announced Blackcomb Pipeline would add another 2.5 Bcf/d of egress capacity out of the basin upon its targeted startup in 2026.
The U.S. Energy Information Administration is forecasting Permian marketed gas production to average 24.8 Bcf/d in 2024 and 25.8 Bcf/d in 2025, compared to 22.9 Bcf/d in 2023.
