Midstream firms rapidly addressing Permian natural gas processing bottleneck

26 Aug 2024 Author Killian Staines Editor Gary Gentile  spglobal.com

Highlights

Brazos Midstream expands into Midland Basin

High utilization rates prompting massive buildout

Midstream operators continue to rapidly build out natural gas processing capacity in the Permian Basin in anticipation of strong production growth.

Brazos Midstream announced Aug. 15 the 200 MMcf/d Sundance 1 cryogenic processing facility in Martin County, its first in the Midland Basin, is mechanically complete and would start operations in October. At the same time, it announced it had begun construction on Sundance II, a 300 MMcf/d plant with an expected start by the end of 2025.

While the Permian has been struggling with egress capacity this summer, regularly sending cash prices below zero, a tight processing market is "the larger issue at hand that is limiting the upstream customers' development," Brazos CEO Brad Iles said Aug. 21 by phone.

"Everything is operating on a razor's edge at the moment," Iles said. "Any kind of interruption from electricity or the heat of the summer that doesn't allow compressors to run quite as efficient... any small impact to the operations cause a pretty dramatic domino effect."

"There are certain areas in the Midland Basin that are busting at the seams because there is more production in that area than there actually is processing," Iles said. "So you have shut ins, you have flaring."

Egress capacity will increase when the Matterhorn pipeline begins service, expected in September. "I'm sure there will be a psychological aspect of having Matterhorn off that will maybe encourage maybe a little more consistent development," Iles said.

Brazos is also "in the final stages" of constructing 175 miles of gathering lines in the Midland basin, with diameters between 16- 24 inches, that will expand its gathering system in the Midland to 260 miles, the company announced Aug. 15. The lines will run through "the core of the Midland Basin, including Ector, Howard, Martin, Midland, Glasscock, and Reagan counties," it said in a statement. The large diameters means it can "easily expand the pipeline system," Iles said.

Wider buildout

Brazos is far from the only operator building out processing capacity in the Permian.

Targa Resources alone is building almost 1.4 Bcf/d in the Permian. It announced Aug. 1 two new 275 MMcf/d facilities that it expects to place in service in 2026: East Pembrook in the Midland Basin, and Bull Moose II in the Delaware Basin. It already has three others under construction, but expects them to fill quickly.

In the Midland, its 275 MMcf/d Greenwood II plant is "expected to be highly utilized when it comes online in the fourth quarter of 2024," Jennifer Kneale, president of finance and administration, said Aug. 1 during the company's second-quarter earnings call. It is also building Pembrook II in the Midland, which "will be much needed and remains on track to begin operations in the fourth quarter of 2025," Kneale said.

In the Delaware, Targa placed the 230 MMcf/d Roadrunner II into service in May 2024. It "was fully utilized after startup," Kneale said. Its 275 MMcf/d Bull Moose I is expected in service in the first quarter of 2025.

Another firm rapidly building out processing capacity is Enterprise Products Partners. It already placed two 300 MMcf/d plants into service earlier this year and plans to expand capacity by a further 900 MMcf/d across three plants by the end of 2026, according to its latest investor presentation.

Kinetik's processing capacity expansion plans have been bolstered by its recent acquisition of Durango Midstream. The acquisition gave it 220 MMcf/d of operating processing capacity in New Mexico, which it plans to increase to 500 MMcf/d by 2025 and 700 MMcf/d by 2026.

Energy Transfer has also boosted its processing capacity through the acquisition WTG Midstream. It recently placed a 200 MMcf/d plant acquired from WTG into service in the Midland Basin, with a second expected in service in 2025. It has also begun to relocate the currently idle 200 MMcf/d Badger processing plant to the Delaware Basin and expects to place the plant in service in mid-2025. Separately, it is increasing capacity at four existing plants by a combined 200 MMcf/d.

Another firm relocating plants is EnLink Midstream. It placed the relocated 150 MMcf/d Tiger II plant into service in May and the plant is already "already well utilized," CFO Benjamin Lamb said Aug. 7. It has yet to announce its next processing plant, but Lamb said it was likely to be another "cost-effective plant relocation" in the Midland Basin. "We may have news on that front in the fairly near future."

Other firms building out capacity include Western Midstream and MPLX, who each have a plant expected in service in 2025.