The Daley Note

ET Pipe FID Delivers Risk of a Permian Overbuild

Written by Ajay Bakshani | Dec 17, 2024 1:00:00 PM

Santa came early for the Permian industry as Energy Transfer (ET) will move forward with the $2.7B Hugh Brinson Pipeline (formerly the Warrior Pipeline). The final decision is a gift to producers but also raises the risk of overbuilding from the Permian, according to East Daley’s basin model.

The 42-inch Hugh Brinson project will span 400 miles from the Waha hub to Maypearl, located south of Dallas/Fort Worth, where it will connect to other ET pipelines and storage infrastructure. The pipeline will feed growing demand in Texas and provide downstream access to the Carthage and Katy hubs.

In Phase 1, ET also plans to construct a 36-inch lateral for 42 miles in Martin and Midland counties to connect the mainline to third-party processing plants in West Texas. Including a Phase 2 compression expansion, the new pipeline will be able to move up to 2.2 Bcf/d.

ET executives had suggested an FID was close on its 3Q24 earnings call in early November. The company plans to start Phase 1 of the project (1.5 Bcf/d capacity) by YE26.

East Daley reviewed the former Warrior Pipeline in November, and our outlook remains the same: we expect an overbuilt market after 2026 as new pipeline expansions outpace Permian supply growth. The 2.5 Bcf/d Matterhorn Express recently started, and WhiteWater Midstream is building the 2.5 Bcf/d Blackcomb Pipeline. Kinder Morgan (KMI) has also taken FID to add compressors to Gulf Coast Express Pipeline. Including the new ET project, industry could add up to 7.75 Bcf/d of capacity by YE26.

The figure compares our latest gas production forecast in the Permian Basin Supply & Demand Report with the outlook for pipeline egress, including the Hugh Brinson line. If Mexico Pacific LNG reaches FID (expected in early 2025), and thus ONEOK (OKE) moves ahead with its Saguaro pipeline, the basin will have plenty of capacity through 2030.

ET’s decision is significant as the type of demand-driven project that could emerge from new data centers and power plants. On the company’s 3Q24 call, executives said contracting for Hugh Brinson is “weighted a little bit heavier towards market pool than it is on producer push.” Rapid population growth in the Dallas/Fort Worth area has coincided with declining production from the local Barnett play, creating a gap for Permian supply to fill.

The shift from pipeline constraints to abundance is great news for producers and will support future Permian supply growth. However, price spreads to the Waha hub will compress as more capacity is added from the basin, cutting into a source of profits for marketers and midstream companies. The upshot for ET at least is another fee-generating asset. – Ajay Bakshani and Andrew Ware Tickers: ET, KMI, OKE.

 

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