Page 6 - NorthAmOil Week 35

NorthAmOil COMMENTARY NorthAmOil
New warnings come over Permian challenges
A new study has said the Permian Basin will struggle with a number of issues in the near future, including the glut of associated natural gas production
PERMIAN BASIN
WHAT:
Permian producers have had their oil takeaway capacity constraints alleviated but continue to grapple with other challenges.
WHY:
Gas takeaway capacity remains constrained, and a lack of oil export infrastructure on the Gulf Coast is also a problem.
WHAT NEXT:
Permian output growth
is expected to start slowing even without infrastructure constraints as sweet spots are exhausted.
OPERATORS in the Permian Basin have strug- gled with a variety of challenges this year, start- ing with the unexpected drop in crude prices at the end of 2018. e consensus now is that oil prices will remain lower for longer, and shale producers are having to adapt accordingly. At the same time, the investor pressure to priori- tise returns ahead of growth is apparent among many independents, who are restraining drilling activity as a result.
The Permian received a welcome reprieve last month with the start-up of two major crude pipelines to the US Gulf Coast. The projects come a er takeaway capacity constraints have been putting additional pressure on producers for almost a year, as pipeline developers scram- bled to alleviate the bottlenecks. But once crude reaches the Gulf Coast, capacity there is still con- strained, and the development of proposed new export terminals will take time. Meanwhile, new gas pipeline capacity is also being developed but is currently in short supply, which is a problem for Permian producers handling rising volumes of associated gas production that is a by-product of oil drilling.
Indeed, a new study commissioned by
Hastings Equity Partners in partnership with the University of Houston Energy Research has warned about the challenges involved in captur- ing and transporting associated gas production. However, the ‘Opportunities and challenges in the Permian’ white paper has also found that the ability to capture, market and deliver Permian gas to potential customers will provide new revenue streams for both producers and service providers.
Call for consolidation
e authors of the white paper, which was look- ing into the downstream impact of new Permian production, also said their findings showed a need for independents to combine balance sheets to buy downstream assets. An alternative they proposed is forming a combined marketing organisation to sell their output internationally.
This comes as super-majors expand in the Permian Basin, taking over a region that was once dominated by independents. These super-majors have their own refineries and petrochemical facilities, the white paper noted, removing the need to purchase crude from inde- pendent producers. is trend makes it all the
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w w w . N E W S B A S E . c o m Week 35 03•September•2019