The oil boom in the Permian Basin, America’s most prolific crude play, has become a gas boom. With its $2 billion takeover of EagleClaw Midstream Ventures LLC, Blackstone Group LP became the latest company to bet on gas in a basin better known for its oil reserves. Its interest lies in “associated gas” — a term used to describe the gas that comes out of an oil well along with the crude. Gas volumes will rise fivefold in five years on the EagleClaw system, said David Foley, chief executive officer of Blackstone Energy Partners LP.
Gas output from the Permian, which accounts for more than a quarter of America’s oil production, has risen to a record every month this year, government data show. That’s spurring deals in the region. Just in the past three months, Targa Resources Corp. took over gas pipelines in the Permian from Outrigger Energy and Western Gas Partners LP exchanged assets for a stake in a gas-gathering system there.
Drilling for Permian oil is covering a bigger area and moving south, boosting gas volumes, Foley said. “We’ve got beachfront property, basically,” Foley said by phone. “And the beach is continuing to extend. We’ve already got, existing or under construction, three-quarters of a billion cubic feet per day of processing capacity” for natural gas.
The Permian has more than just booming production going for it. Blackstone says it’s targeting the play because supplies there are linked to global prices. In contrast, natural gas prices in eastern US basins, such as the Marcellus shale, have been weighed down by a regional glut of supply.
Permian gas may be easily exported to Mexico via pipeline and as liquefied natural gas from terminals on the Gulf of Mexico, Foley said. Texas gas also sells at less of a discount to the benchmark Henry Hub in Louisiana, compared with Marcellus supplies, according to data compiled by Bloomberg.
“Export is the single biggest source of growth in natural gas demand in the US,” he said, “and this asset is next door.”