Permian Natural Gas Offers Tremendous Potential

Mella McEwen | Midland Reporter-Telegram | December 29, 2018

Already among the world's dominant oil-producing regions, the Permian Basin has the potential to add natural gas production dominance to its resume.

As Industrial Info Resources put it, the Permian Basin could turn into "Marcellus West" as natural gas production has doubled over the last three years to just shy of 13 million cubic feet per day, a trend the company expects to continue.

There are, however, some barriers to achieving that distinction, according to Jesus Davis, vice president, research for the oil and gas industry at Industrial Info and IIR Energy.

The monkey wrench is the decline in oil prices," Davis said in a phone interview from his Sugar Land office.

"I think the biggest concern I have for gas production in the Permian Basin is oil prices," he said.

If prices fall further or remain low for an extended period, that would not only affect crude production but natural gas production and natural gas liquids production, Davis said.

"We'd see a significant slowdown," he said.

Operators in the coming months could decide their capital is better spent on mergers and acquisitions than drilling, he said.

Infrastructure is another concern, as Permian natural gas production threatens to overwhelm takeaway capacity just as crude oil production has done, Davis said. But that is an issue that will solve itself, he said.

Davis estimates there are four huge pipeline projects proposed with 60 billion cubic feet of natural gas takeaway capacity, compared a potential of 10 to 15 million cubic feet of daily production, he said.

"It's definitely adequate – maybe too much for natural gas and for oil," he said. "If it all gets built, it's too much. But that's how it works – you go from none to too much."

What stymied development in the Marcellus is similar to what's happening now in the Permian, Davis said: Production grew so fast, takeaway capacity couldn't keep up. And efforts to build new pipelines met opposition from residents and environmentalists, he said., '

"Projects proposed four years ago are still waiting for permits," he said.

In Texas, the environment is friendlier and, because the proposed pipelines are intrastate, "It's a Texas issue. With the Texas Commission on Environmental Quality and Railroad Commission, permitting is more straightforward."

That additional capacity doesn't take into consideration the pipelines moving natural gas south to Mexico, Davis said.

"We have capacity just waiting on Mexico to build on the other side, whether it's to power plants or industrial demand," he said.

He said he's not concerned about the efforts of Mexico's new president, Andres Manuel Lopez Obrador, to build up Mexico's energy industry and reduce reliance on imported energy sources.

"(He) doesn't realize what it takes to turn an industry around," Davis said. Though the same shale formations Texas is busily developing are found in Mexico as well, he said the country hasn't invested in its infrastructure.

Mexico doesn't have the capital or the technology to develop those shales," he said. "Their problem is they're expanding into new areas and they need money just to stem the slowdown in the industry. I think they'll still be dependent on outside energy resources."

Beyond supplying natural gas in its gaseous or liquefied form, America is preparing to turn its newfound natural gas riches into other resources like ethane and ethylene, much for export.

"The U.S. has always been an importer, we've never been a supplier; now we are," Davis commented.

That has translated into investment in export infrastructure for crude, natural gas, natural gas liquids, refined products, liquid propane gases, liquefied natural gas, ethanes and ethylenes, he said.

"We need to open our eyes and look at the world, not just here," he said.

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