American Oil and Gas Reporter - March 2019 - 76

SpecialReport: Processing & Industry Infrastructure

Activity Spurs Midstream Expansions
By Colter Cookson
U.S. crude oil, dry gas and natural
gas liquids production are each at an alltime high as operators train their attention
on infill development of horizontal resource plays. The surging output is driving
demand for all types of midstream and
processing equipment and infrastructure
to move liquids and gas from the wellhead
to the processing point-whether a refinery
in Wyoming, a cryogenic processing plant
in Pennsylvania, a liquefaction train at a
Gulf Coast LNG export terminal or a
compressor station in Oklahoma.
To meet the demand, a 2018 report
prepared by ICF International Inc. for
the Interstate Natural Gas Association of
America estimates that the industry will
spend an average of $13.1 billion a year
on transmission pipelines through 2035
to connect the upstream with downstream
markets. In between, of course, is the
crucial midstream link to support both

ends of the supply chain. The INGAA
report forecasts an average $7.2 billion
in annual spending during the next 16
years on gathering and processing infrastructure.
From the producer's perspective, that
infrastructure can't get built soon enough.
In some areas, booming production and
limited local take-away capacity are creating real obstacles for operators that are
influencing where they allocate capital.
The Permian Basin is the most obvious
case in point. Pipeline constraints largely
explained why the Midland discount to
West Texas Intermediate at Cushing approached $18 a barrel in September 2018,
according to John Zanner, manager of
crude oil analysis at RBN Energy. Three
weeks later, that differential narrowed to
less than $6, largely because of the extra
take-away capacity provided when Plains
All American Pipeline LP's 350,000 barrel
a day Sunrise Expansion came on line.
While the expansion improved in-

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76 THE AMERICAN OIL & GAS REPORTER

basin oil prices, the incremental oil production it spurred came with 700 MMcf/d
of associated gas that strained already
limited natural gas take-away capacity,
says Jason Ferguson, manager of natural
gas analysis at RBN. By the final week
of November, the absolute price at the
Waha gas hub settled as low as
$0.455/MMBtu, nearly $4.00 below Henry
Hub. That same week, intraday trade
prices fell as low as negative $0.25/MMBtu-meaning some producers actually had
to pay the market to take their gas.
"With gas production pushing against
available take-away capacity, all it takes
is an otherwise minor or routine maintenance event on even one West Texas takeaway pipeline to send regional gas prices
into negative territory again," Ferguson
says. "For example, in the first week of
February, Waha gas prices collapsed to
their lowest level ever, falling to a daily
settlement price of $0.085 cents an MMBtu
in spot trading on Feb. 4."

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American Oil and Gas Reporter - March 2019

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