Waha Winter Basis Rebounds; Midstreamers Expanding

May 23, 2022 - As shown in the chart below, the Waha basis for Winter ‘23/’24 was near -40c at the beginning of the year, and as of mid-March, it rapidly deteriorated to nearly -$1.40 on early producer hedging and expectations of potential egress capacity constraints out of the basin.

With the recent announcements from midstream companies about their pipeline expansions from West Texas to the U.S. Gulf coast, the Winter ‘23/’24 strip rebounded back to -69c. The front of the curve remained relatively unchanged, whereas the further-dated tenors are improving.

At least three pipelines have expansion projects underway with targeted completion in 4Q2023. The expansion projects account for around 1.7 Bcf/d of new dry gas production in the basin and would allow producers to increase output further.

Pipeline Announcements

Kinder Morgan announced a binding open season on its Permian Highway Pipeline expansion on April 25. The project involves adding compressors on PHP to increase the pipeline's capacity by 650 MMcf/d. The project's projected in-service date is October 2023, pending additional customer agreements.

Kinder Morgan announced the start of an open season for the Gulf Coast Express expansion on May 16. The project entails adding compressors to the GCX pipeline to enhance its capacity from the Permian Basin to South Texas markets by 570 MMcf/d. The project is expected to be operational in December 2023, subject to additional customer agreements.

WhiteWater announced on May 2 that the Whistler Pipeline would be expanded to 2.5 Bcf/d, an increase of 0.5 Bcf/d. The Whistler pipeline has gained the final investment decision and is scheduled to be operational in September 2023.

WhiteWater announced the approval of the Matterhorn Express Pipeline on Thursday, May 19. It transports 2.5 Bcf/d of natural gas from West Texas' Permian Basin to Houston's Katy area. The 490-mile pipeline is expected to be in service in 3Q2024.

Historically, drilling economics are driven by oil prices in the Permian basin, but gas pipeline capacity has been the constraint that has limited gas-production growth in the past.

According to S&P Global, Permian crude oil takeaway capacity is around 7 MMBbl/d, or around 1.8 MMBbl/d higher than current production levels. Therefore, oil likely has some room to grow before oil-pipeline capacity would be the limiting factor.

AEGIS notes If the ratio of gas to oil is 3.2 Bcf/d per 1 MMBbl/d, that means that the current crude oil takeaway capacity would support dry gas production growth of 5.76 Bcf/d, which is more than would be available with the recent expansions. Analysts say there is around 1.5 Bcf/d of takeaway capacity currently and another 1.7 of expansion announced, which would mean that growth may be capped at around 3.2 Bcf/d of growth or 1 MMBbl/d.