Permian Oil And Natural Gas Production Continues To Grow

August 9, 2018

With the latest Drilling Productivity Report released from the EIA on July 16, the numbers in Texas' Permian basin - our largest oil field and our second largest natural gas field - continue to grow, 3.33 million b/d of oil and 10.7 Bcf/d of gas produced this month - with even more expected in August.  Natural gas in the Permian comes as a byproduct of crude oil production ("associated gas"). In fact, despite accounting for 12-15% of total U.S. gas production, from May 2016 to May 2018, the Permian did not have a single gas-directed rig. Investments in the Permian have represented "$2 of every $10 spent on oilfield services and equipment worldwide." The wave of supply is coming at the right time for a state that gets half of its electricity from natural gas: "Texas sets new records for July electricity usage."

With the production boom, local gas prices at Waha hub have plummeted well below the national Henry Hub benchmark, down 30% over the past year alone. Constrained by a lack of pipelines (e.g., takeaway capacity has been put at 3.2 million b/d, with production expected to surpass 3.4 million b/d in August),  producers are often forced to flare the associated gas. After a certain amount of time, however, gas can only be flared with an exemption from state regulators - another reason why environmental groups should support more pipelines. The Railroad Commission of Texas issues flare permits for 45 days at a time, for a maximum limit of 180 days. Bloomberg reported Permian natural gas pipelines at 98% full in June.

As crude production and thus gas output continues to mount, some Permian oil producers...

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