Jigsaw Puzzle - How WhiteWater's New Natural Gas Storage Project Fits in the Permian

04/28/2021Published by: Jason Ferguson  rbnenergy.com

Permian natural gas markets have never been more interesting, if you ask us. Sure, there are no negative prices at the Waha hub these days, and the triple-digit prices produced by Winter Storm Uri are starting to fade in the rear view. But there’s plenty of action ahead for Permian gas this year and next. For starters, sometime in the next few weeks the 2.0-Bcf/d Whistler Pipeline is scheduled to begin moving natural gas from the Permian to South Texas, further enhancing takeaway options for the basin’s continually growing supply of gas. That’s good news, considering Permian gas production is at record highs and set to grow to over 14 Bcf/d by the end of 2022. Speaking of records, gas exports from the Waha Hub to Mexico have never been higher and should increase further this summer, as power demand increases and a new pipeline across the border is expected to come online. Topping all that off is the recent news that the Permian will soon see a major gas storage facility start up right in the middle of the Waha hub. The latter is the focus of today’s blog, in which we detail WhiteWater Midstream’s latest addition to the Permian gas infrastructure puzzle.

It’s been an eventful last year for the Permian, to say the least. About 12 months ago, producers in the basin were sitting on the edge of their seats, holding their breath, and shutting in a significant portion of Permian production while crude oil prices languished after going negative in April 2020. As if that weren’t wild enough, the Permian then had to slash its way through the trouble created by Winter Storm Uri back in February, when frigid temperatures and widespread power outages knocked off far more production than was curtailed during the spring of 2020. We won’t rehash all those details here today, as we just covered them in Crazy – A Year Like No Other, but it’s safe to say that the Permian should be a more stable place to operate in the weeks ahead (knock on wood). However, that doesn’t mean it will be boring — far from it! In fact, in the midst of Uri’s insanity, the latest gas infrastructure development in the Permian was announced, when Enstor agreed to sell its Waha Gas Storage assets to WhiteWater Midstream. Though it might have been lost in the news of $200/MMBtu prices at Waha back in February, we sense that this latest announcement has been met with an elevated level of interest by Permian gas marketers. Let’s take a look at the project’s details.

​ On February 16, 2021, while Texas was in the grips of the Deep Freeze, Enstor announced that it had sold its Waha Gas Storage assets to WhiteWater, an Austin, TX-based midstream company that is partnered with multiple private equity funds, including (but not limited to) Ridgemont Equity Partners, Denham Capital Management, First Infrastructure Capital, and the Ontario Power Generation Inc. Pension Plan. The assets, indicated by the yellow star in Figure 1, include six underground storage caverns and permits for five additional caverns. Once fully developed, the assets could be used to store up to 10 billion cubic feet (Bcf) of natural gas. On the face of it, the announcement seems simple enough, but as with most gas infrastructure projects out in West Texas, the devil is in the details and there is more to this story than meets the eye.

Additional details on the project emerged this spring, as WhiteWater commenced an open season on April 12 that runs through May 21 for 2 Bcf of firm natural gas storage service at what the new owner calls the Waha Gas Storage (WGS) facility. As outlined in the open season, WGS is slated for a start on or around July 1 of next year and will be interconnected with WhiteWater’s Agua Blanca header system which essentially sits on top of the WGS facility at Waha, where the Agua Blanca Pipeline terminates. More on the Agua Blanca header in a bit. WGS will be capable of injecting and withdrawing 200,000 million British thermal units (MMBtu) of natural gas daily, charging 1.5% for fuel and $0.03/MMBtu on withdrawals, in addition to the firm storage fees agreed upon during the open season. It is our understanding that although the facility will presently offer 2 Bcf of capacity in the six existing caverns, expansion to 10 Bcf can be facilitated through a combination of additional salt-cavern leaching and development of five prospective caverns that have only thus far been permitted.

Integration with Existing Permian Gas Infrastructure

One of the key attractions of WGS appears to be its potential integration with WhiteWater’s existing Permian Basin natural gas infrastructure. We mentioned the Agua Blanca Pipeline earlier and its footprint seems to be a real difference-maker when it comes to integrating storage at Waha. We detailed Agua Blanca way back in the summer of 2017, when the Permian gas infrastructure build-out was just starting and the folks at WhiteWater presciently built the first phases of what is now a more than 200-mile system of large-diameter residue pipeline spanning the Delaware Basin (orange line in Figure 1). Not only does Agua Blanca interconnect with numerous Delaware gas processing plants (colored dots in left half of Figure 1), it benefits from a massive header system of its own at the Waha Hub. These interconnects at Waha include various interstate and intrastate pipelines with over 6 Bcf/d of existing and planned capacity. Among those links will be WhiteWater’s own 2.0-Bcf/d Whistler Pipeline (blue line in Figure 1), which we detailed in Whatever It Takes, that will begin service to South Texas in the next few weeks. Whistler will also receive residue gas from a number of gas processing plants in the Midland Basin (colored dots to right in Figure 1).

​ It’s the high level of integration with WhiteWater’s existing assets that seem to have helped facilitate the purchase of WGS, which has been widely known to have been on the auction block for some time now. You see, even though additional natural gas storage in Texas has been bandied about as a potential insurance policy for Deep Freeze-type events, the gas futures market still doesn’t offer much reward for those looking to build gas storage facilities. That lack of financial incentive is why, in our view, the 2 Bcf of storage being added at Waha is the only facility of its type to be developed in the Permian since we’ve been covering the basin. No others are being planned, as far as we know.

Despite the WGS project’s uniqueness, we don’t get the sense that WhiteWater is going out on a limb here. Folks are actually excited about what they’re planning, from what we hear. While the WGS facility seems to integrate well with Agua Blanca and Whistler, its interconnects are likely to attract interest from shippers moving gas along other routes in the Permian. That integration could serve the basin well, as we see the Permian continuing to be relied on heavily for supply in the Texas and Southwest regions. Though we now see production climbing to 14 Bcf/d by the end of next year, up from around 13 Bcf/d when we wrote our 2021 Outlook for Permian Oil and Gas Markets back in January, demand for Permian molecules has never been higher. Markets west of the Permian are now pricing at solid premiums to Henry Hub just to ensure a steady flow of Permian supply, while a major new pipeline within Northwest Mexico is set to soon increase exports south of the border, and at the same time South Texas exports of natural gas to Mexico and LNG to other international locations are setting new highs. As a result, we see interesting times ahead in the Permian, and WhiteWater is once again adding valuable infrastructure to the West Texas gas puzzle.