Originally published for customers May 13, 2022.
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What’s the issue?
Beginning in early 2019 and continuing through the end of 2020, ArboIQ issued a monthly report that detailed the progress of all of the intrastate pipelines that were proposed to bring product, crude, NGLs or gas from the Permian basin to markets elsewhere in Texas. Those projects were all completed when Whistler was placed into service on July 1, 2021.
Why does it matter?
When those projects concluded we were in the midst of the pandemic and the general thought was that the Permian had all of the pipeline takeaway capacity it needed for the foreseeable future. However, with the post-pandemic economic rebound and the war in Ukraine, it now appears that there is a growing shortage of natural gas pipeline capacity that needs to be addressed in 2023 and perhaps for a few years beyond that.
What’s our view?
Our extensive records from the last Permian build-out allow us to provide our subscribers with information on the proposed projects to address this growing bottleneck. We see Whistler as being in the lead on the compression only projects and its sister greenfield pipeline, Matterhorn, also running ahead of its competitors for pipeline projects.
Beginning in early 2019 and continuing through the end of 2020, Arbo issued a monthly report that detailed the progress of all of the intrastate pipelines that were proposed to bring product, crude, NGLs or gas from the Permian basin to markets elsewhere in Texas. Those projects were all completed when Whistler was placed into service on July 1, 2021. When those projects concluded, we were in the midst of the pandemic and the general thought was that the Permian had all of the pipeline takeaway capacity it needed for the foreseeable future. However, with the post-pandemic economic rebound and the war in Ukraine, it now appears that there is a growing shortage of natural gas pipeline capacity that needs to be addressed in 2023 and perhaps for a few years beyond that.
Our extensive records from the last Permian build-out allow us to provide our subscribers with information on the proposed projects to address this growing bottleneck. We see Whistler as being in the lead on the compression only projects and its sister greenfield pipeline, Matterhorn, also running ahead of its competitors for pipeline projects.
This Time is Different
When we were following the projects proposed in the 2019 period, the projects were all greenfield pipeline projects. However, this time around the projects that have indicated that they can be in-service first are proposals to add additional compression to three of the pipelines that were recently completed — Whistler, Permian Highway and Gulf Coast Express. That is not really a surprise if you followed these projects when they were built. All three were 42-inch pipelines, with 2 Bcf/day of capacity for Whistler and Gulf Coast Express, and 2.1 Bcf/day for Permian Highway. We followed the permitting process for all three of the pipelines and so we knew that Whistler and Gulf Coast Express had spaced their compressor stations about every 120 miles, whereas Permian Highway’s were closer together at about every 90 miles, which could account for its initial higher capacity, assuming all were using pipeline with the same maximum allowable operating pressure.
We would expect that the additional capacity announced by each of these pipelines of about half of a Bcf/day can be achieved by adding compressor stations in between the existing stations and thus reducing the spacing to about every 60 miles for Whistler and Gulf Coast Express, and about every 45 miles for Permian Highway. Our review of the property records for all three projects shows that Whistler obtained the rights for those interim compressor stations at the same time it was acquiring the rights to the original project. Thus, they already have the land rights needed to build three new compressor stations. We do not see similar land acquisitions by Gulf Coast Express and Permian Highway. Thus, that gives Whistler a bit of an advantage and may explain why it has announced that it can be the first one into service by September 2023, whereas Permian Highway has set its in-service date for just a month later.
Greenfield Pipelines
On a joint webinar last Wednesday with East Daley, they noted that, even with all three compression expansions coming online, they still project the need for at least one more 2 Bcf/day pipeline by 2025, at the latest. There have already been a number of projects proposed to fill this need. Energy Transfer has said it can build about 260 miles of new greenfield pipeline from the Permian to its existing 36-inch system near Fort Worth, Texas and then utilize that system’s existing capacity to reach other markets. Kinder Morgan has said it is seeing revived interest in a project that was originally part of the first wave of construction, Permian Pass, but which was delayed until at least 2025. Finally, the same group that built Whistler has already received authority to construct a new 410-mile pipeline, called Matterhorn, that will connect the Permian to the Katy Hub near Houston.
Data Can Help
As we discussed on the webinar, our experience using diverse sets of data within Texas allows us to help subscribers follow the progress on these projects. First, our use of land records allows us to identify the locations of the proposed compressor stations that are being built and then monitor those locations for signs of construction. With respect to the greenfield projects, we can use the data we developed during the last wave to monitor the acquisition of rights of way, which is probably the best long-range indicator of whether a pipeline is seriously progressing toward construction and also an early indicator of a likely in-service date.
As seen above, we know from the last wave that land acquisition usually starts about 18 to 24 months before the actual in-service date of a project and is at its peak between 9 and 18 months before in-service. So far, we see no land acquisition activity for any of the three greenfield pipelines, but that data tends to be about a month delayed, so that doesn’t mean there hasn’t been any. Also, we would note that Whistler started its land acquisition about twenty months before its in-service date — and if Matterhorn were able to replicate that speed and started acquiring land this month, it could be in-service by the end of 2023 or early 2024.