The Permian Basin is one of the largest oil fields in the world. In addition to pumping out millions of barrels of oil each year, the region also produces a significant amount of associated natural gas. In 2018, the Permian contributed 11% of America's total gas output at 10 billion cubic feet per day (Bcf/d). There's plenty more gas on the way as the region's production is on track to more than double by 2025, according to one forecast.
That fast pace of growth is fueling the need for gas-related infrastructure, especially long-haul pipelines that move it out of the region. Two major gas pipelines are already under construction, and a third one recently received the green light. These pipelines should be enough to support the region's needs for the next few years, though more gas infrastructure will likely be needed in the future.
Whistler finally moves forward
Last August, several large energy companies, including midstream giant MPLX (NYSE:MPLX), signed a letter of intent to jointly develop the proposed Whistler Pipeline Project, which would move natural gas from the Permian Basin to the Texas Gulf Coast. The partners initially thought they could have their 2 Bcf/d pipeline in service by the end of 2020. While they had secured enough shippers for three-quarters of the pipeline's capacity, that wasn't enough to move forward with construction.
The project quickly took a back seat to a rival one by Kinder Morgan (NYSE:KMI) after the gas pipeline giant secured ExxonMobil as an anchor shipper for its Permian Highway Pipeline (PHP). That agreement helped push Kinder Morgan's project ahead of Whistler. As a result, the company was able to sanction construction a month later.
A lot has changed since MPLX's partners initially pitched Whistler nearly a year ago. Two of the project's main partners are no longer participating. Instead, MPLX is now developing the pipeline with three privately held partners. While they have finally secured enough shippers to move ahead with construction, the partners haven't filled Whistler's design capacity of 2 Bcf/d, though they expect to secure contracts for the remaining availability in the coming months. MPLX anticipates that the project will be in service by the third quarter of 2021, assuming it receives the necessary approvals.
There are more projects in the pipeline
Whistler is now the third gas pipeline project sanctioned by energy companies in the past few years. It follows Kinder Morgan's Gulf Coast Express (GCX) and PHP, which should start service in October of 2019 and 2020, respectively. Like Whistler, both of those projects will move about 2 Bcf/d.
While that's a significant amount of gas capacity, Whistler probably won't be the last gas pipeline to move forward. Kinder Morgan's CEO Steve Kean provided a glimpse of the region's growth potential on its first-quarter conference call. He said:
If you look at the projections, they would show you that a GCX a year almost is what's required in order to satisfy the need for takeaway capacity and to unlock the value of the other commodities out of the Permian. I don't know that it's going to be anything like that pace or that it's going to be at that pace. But there's certainly interest already in Phase 3.
Kean further noted on the call: "There are some discussions ongoing. There's nothing to announce, and of course it's not in the backlog because we're not under contract or anything, but the demand to get out of the Permian continues to grow and the desire to be able to unlock the value that's in oil and the NGLs (natural gas liquids), as well as the natural gas, continues to put pressure on the need for additional takeaway capacity."
With Whistler moving forward, the Permian Basin likely won't need another pipeline until 2022. While Kinder Morgan is already working on that next pipeline, it's not the only one. LNG project developer Tellurian (NASDAQ:TELL) has proposed building the Permian Global Access Pipeline to transport natural gas from the region to Louisiana, where it's developing an export terminal. The pipeline would have the capacity to ship at least 2 Bcf/d and could start service as early as 2023. That time frame lines up with when Tellurian hopes to complete its proposed Driftwood LNG export facility. Meanwhile, several other midstream companies have proposed smaller-scale gas pipeline projects, which could help meet the region's infrastructure needs.
Lots of growth ahead for midstream companies
While it took a bit longer than expected, MPLX will move forward with the Whistler Pipeline, which will not only help move more gas out of the Permian Basin but continue that company's evolution. Meanwhile, there should be plenty more gas flowing out of that region in the coming years, which will drive the need for new pipelines. That bodes well for a company like Kinder Morgan, which could eventually build a third gas pipeline out of the region and add a bit more fuel to its growth engine.