As rig rage drove up the U.S. count to a level not seen in years, production in the prolific Permian Basin entered 2017 under the shadow of a bottleneck that threatened to choke the flow of all that black gold.
But as luck would have it, the midstream sector saw that coming.
During January alone, midstream companies shared their expansion plans to increase capacity by more than 300,000 barrels per day (bpd), hauling hydrocarbons from the Permian Basin.
Analysts had forecast production increases would fill incremental capacity, and create problems for producers in the basin by the third quarter, extending until new capacity could be added. Now, if capacity tightens to a pinch, the point would only last a month or two, said Justin Carlson, vice president and managing director of research at East Daley Capital.
“And if rigs continue to ramp the way they’ve ramped in the Permian, it could mean that we [still] don’t have enough capacity,” Carlson said. “It would not shock me to see another incremental expansion on one of these systems to respond to production growth that producers and – the forward curve – is currently justifying.”
According to East Daley calculations, there is a strong correlation between WTI oil prices and the Permian rig count, which teetered close to 300 at the end of January. For every $1 change, five rigs were either added or dropped from the Permian within three months.
Read the full Rigzone article here.