Kinder Morgan may develop a third major natural gas pipeline to serve producers in the booming Permian Basin. Internal discussions at the company are under way, Kinder Morgan’s CEO, Steven Kean, told investors during an earnings call.
Demand for gas takeaway capacity could grow by 2 bcf (57 mcm) per day each year over the next few years, he said. This would be equivalent to the capacity of the pipeline operator’s US$1.75 billion Gulf Coast Express project. The 42-inch (1,067-mm) pipeline, from the Waha Hub to the Agua Dulce hub near Corpus Christi, is due to come online in October.
In addition, the Houston-based company’s US$2.1 billion Permian Highway is set to come online in the autumn of 2020. It will also have a capacity of 2 bcf, and will run from the Waha Hub to the Katy Hub, near Houston.
“Demand to get gas out of the Permian continues to grow and the desire to unlock value that’s in oil and NGLs [natural gas liquids] continues to put pressure on the need for additional takeaway capacity,” Kean said. “There is interest in pipe three.”
Gas output in the Permian is booming owing to associated production from oil drilling, leading to depressed prices at the Waha pricing hub in West Texas. The US Energy Information Administration (EIA) has projected that gas output in the region will reach 13.89 bcf (393 mcm) per day this month and 14.12 bcf (400 mcm) per day in May. This would mark a doubling in production in less than three years.
Permian gas pipeline capacity has struggled to keep up with the surge in output – which has also been the case for oil – and flaring has risen in the basin as a result.
In early April, next-day natural gas prices at the Waha hub were at record negative levels, according to data from the Intercontinental Exchange (ICE). They fell to minus US$3.38 per mmBtu (minus US$93.49 per 1,000 cubic metres) on April 3, down from minus US$0.02 per mmBtu (minus US$0.55 per 1,000 cubic metres) the day before.
At the time, the spread compared with the Henry Hub benchmark in Louisiana had reached US$6.14 per mmBtu (US$169.83 per 1,000 cubic metres). This was higher than the previous record spread of US$5.85 per mmBtu (US$161.81 per 1,000 cubic metres) in February 1996.