American Oil and Gas Reporter - August 2018 - 42

Permian Production Hitting New Highs
Permian oil production doubled from
2012 to 2017, expanding to more than
2.5 million barrels a day by mid-2017.
And now a new IHS Markit forecast says
it is on pace to effectively double again
by 2023, adding another 3.0 MMbbl/d in
what is already the world's fastest growing
oil producing region.
Describing its Permian production outlook as "stunning," IHS Markit forecasts
that Permian oil volumes will reach 5.4
MMbbl/d within five years-driven by
some 41,000 new wells and $308 billion
in upstream spending.
"In the past 24 months, production
from just this one region-the Permian-
has grown far more than any other
entire country in the world," says Daniel
Yergin, IHS Markit vice chairman. "Add
an additional 3 MMbbl/d, more than
the total present-day production from
Kuwait, and you have a level of production that exceeds the current production of every OPEC nation except
for Saudi Arabia."
The latest data from the U.S. Energy
Information Administration show Permian
output at 3.3 MMbbl/d in July (Figure 1).
The soaring supplies flowing from West
Texas and Southeast New Mexico are a
major factor in IHS Markit's expectation
of major growth in U.S. crude exports,
with the volume of oil departing U.S.
shores anticipated to jump from 1.1 MMbbl/d in 2017 to 4.0 MMbbl/d by 2023.

In addition to oil production growing
116 percent over 2017 levels, IHS Markit
says it also expects production of both
natural gas and natural gas liquids to more
than double by 2023, reaching totals of 15
billion cubic feet a day and 1.7 MMbbl/d,
respectively. On a percentage basis, that
would represent 114 percent growth in gas
and 105 percent growth in NGL production
(incidentally, a separate IHS Markit study
predicts that U.S. liquefied natural gas exports also will more than double by 2023).
While the estimated $308 billion in
upstream capital expenditures during the
next five years is more than twice the
$150 billion spent between 2012 and 2017,
IHS Markit says access to capital will not
be the primary challenge awaiting Permian
producers. Among other factors, the outlook
expects wells to operate with positive cash
flows, in contrast to prior years.
The company says its outlook anticipates WTI prices of at least $60/bbl. In
that oil price scenario, the greatest potential
obstacle is restricted infrastructure capacity,
rather than the availability of upstream
investment capital.
Urgent Challenge
On the IHS Markit website, Jim
Burkhard, vice president and head of
crude oil markets, dubs pipeline takeaway capacity the "urgent challenge" facing Permian producers, given that inbasin refining capacity is presently limited

to about 600,000 bbl/d, requiring more
than 80 percent of produced oil to be
shipped outside the region.
One obvious indicator of the need for
increased take-away capacity is the growing price differential between WTI priced
at Midland and other light sweet crudes,
such as Light Louisiana Sweet (LLS)
priced at the St. James trading hub. According to Burkhard, the differential between WTI and LLS had jumped to more
than $20 a barrel by early summer, reflecting the fact that tight pipeline capacity
is forcing more oil to move to Gulf Coast
market centers by rail and truck. "Higher
transportation costs mean that WTI at
Midland needs to be priced lower to compete with other crudes on the Gulf Coast,"
he observes.
The take-away capacity bottleneck
(and resulting WTI differentials) likely
will persist for some time, he goes on.
Since 2013, 1.8 MMbbl/d of take-away
capacity has been added through a combination of expanded legacy systems and
new-build lines, Burkhard indicates. An
example is Enterprise Products Partners'
new 585,000 bbl/d pipeline from Midland
to Houston that commenced operations
in late 2017. "However, production has
been rising so rapidly that output is again
nearing the limits of existing pipeline
capacity," he says.
Four new pipeline projects with a
combined capacity of 2.4 million bbl/d

FIGURE 1
Permian Crude Oil and Natural Gas Production
Permian Region
Oil Production

Permian Region
Natural Gas Production

Oil +73,000
bbl/d
month over month

bbl/d x 1,000

MMcf/d

3,500

21,000

3,000

18,000

2,500

15,000

2,000

12,000

1,500

9,000

1,000

6,000

500

3,000

0
2009 2010

2011 2012 2013 2014

2015 2016

Source: U.S. EIA

42 THE AMERICAN OIL & GAS REPORTER

2017

2018

Gas +234
MMcf/d
month over month

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

American Oil and Gas Reporter - August 2018

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