Kinder Morgan Announces New Permian Gas Pipeline Project

SEATTLE (Oil Monster): Kinder Morgan Inc. (KMI), Apache Corporation (APA), and Blackstone-backed (BX) EagleClaw Midstream Ventures are teaming up to fix one of the Permian Basin’s great problems, a lack of gas takeaway capacity. Often the focus on Permian pipeline constraints is solely on the oil side of things, but that misses another major problem the region will need to come to terms with. Let’s go over this consortium’s strategy to alleviate one of the Permian’s most understated constraints.

Unlike oil, natural gas (in its gaseous state) can’t be easily transported. When oil pipelines are full, the upstream industry can turn to truck and rail to move those volumes. Yes, this strategy has its problems as those are more expensive modes of transportation so upstream realizations tend to suffer immensely, but at least those volumes can get to market. When gas pipelines are full, short of a major change in state flaring regulations, a lot of Permian wells will have to either be shut-in or future development activity will need to be curtailed to allow production declines to take hold.

Texas doesn’t allow for gas flaring to go on indefinitely, and in the current political climate, it would be a hard sell to change the RRC’s existing flaring rules to those resembling North Dakota’s several years ago (before those rules were changed to dramatically reduce gas flaring in the state). Here are the Railroad Commission of Texas’ flaring rules.

What this means is that when the Permian Basin’s gas pipelines are finally maxed out, production growth will stall out until new capacity comes online because there are no straightforward workarounds. That creates an amazing growth opportunity for midstream players.

Courtesy: www.seekingalpha.com