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Permian: Oil Pipeline Takeaway. Too Much or Just Fit?
10/17/2017
Midstream key regional players continue to plot new pipelines to take all the petroleum from West Texas to refineries, export hubs and petrochemical plants.
However, even with production from the Permian Basin being up 24% since the year began, the capacities being built may not find their customers.
Almost a two-fold increase in takeaway will mean lower margins. Production will ot keep up with such growth soon enough.
No operator abandons exisitng projects. Yet, a hunt for partners has begun.
Among the players involved are Kinder Morgan Inc. (NYSE: KMI), DCP Midstream LP (NYSE: DPM), and also Targa Resources Corp. (NYSE: TRGP) not to mentione others.
Some analysts say output can accommodate many of the new transportation lines. Permian production should rise through 2026 but it may peak sooner.
The competition for deals to fill the pipelines is so fierce that margins for operating the lines are likely to be thin without consolidation.
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Energy Transfer LP Races to Carry Permian Basin Gas to Gulf Coast Hubs
The ever-increasing demand for natural gas exports from the Gulf Coast started a race to further develop Permian Basin. Various companies, including Kinder Morgan and MPLX, are among those looking at building new pipelines in the region due to the demand spike. But Energy Transfer seems to edge past them into the lead since its project strikes as the most economical option for the basin outside of capacity expansions on existing pipelines and could essentially add 1.5-2 Bcf/d of transport capacity with just 260 miles of new pipe.
U.S. Natural Gas Pipelines Infrastructure Overview by Rextag
The U.S. natural gas pipeline network is a complex system of pipelines that transport natural gas from production areas to consumers across the country. The pipeline network consists of three main types of pipelines: gathering pipelines, transmission pipelines, and distribution pipelines. Gathering pipelines are small-diameter pipelines that transport natural gas from production wells to processing facilities or larger transmission pipelines. Transmission pipelines are large-diameter pipelines that transport natural gas over long distances, sometimes across multiple states. Distribution pipelines operate at low pressure and are located in or near urban areas. They are often referred to as "utility pipelines" because they are typically owned and operated by local gas utility companies.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.