(Reuters) - U.S. energy company Kinder Morgan Inc said its proposed Permian Pass natural gas pipeline in Texas faced an uncertain future since no customers for the project have been lined up in the current low-price environment.
In recent years, gas production associated with record oil output in the Permian basin in West Texas and eastern New Mexico has grown faster than energy firms could build new pipelines and other infrastructure needed to transport the fuel to market.
That lack of pipeline space prompted drillers to flare record amounts of Permian gas in 2019 and caused prices at the region’s Waha hub to turn negative several times over the past year.
Kinder Morgan Chief Strategy Officer Dax Sanders told analysts at the Credit Suisse Energy Summit in Vail, Colorado, on Wednesday the company would not build Permian Pass “until we get good solid long-term contracts, minimum 10-year take-or-pay contracts.”
“We don’t have anybody signed up yet,” Sanders said, noting “If it comes together, it does. If it doesn’t, it doesn’t.”
Sanders said Kinder Morgan was still seeking customers for the project and could make a final investment decision this year to build the 2.0-billion cubic feet per day (bcfd) pipe if it secures the contracts.
Sanders said current market conditions suggest Permian Pass will be needed around 2023.
Gas production in the Permian is expected to rise to a record 17.0 bcfd in March, up more than 21% from the same month last year, according to federal energy projections. [EIA/RIG]
In the Permian, drillers are seeking oil, which is more valuable than gas, so they are insensitive to low gas prices and have little reason to stop producing the fuel.
The first big gas pipe to enter service in the Permian in recent years was Kinder Morgan’s $1.75 billion Gulf Coast Express in September 2019, which provided the region with much needed takeaway capacity to the Gulf Coast.
Analysts noted Gulf Coast Express was already filled to its 2.0-bcfd capacity and the market will have to wait until early 2021 for relief. That is when Kinder Morgan expects to put the 2.1-bcfd Permian Highway gas pipe into service.
“There is no question that over time ... building any sort of infrastructure has gotten more difficult,” Sanders said, referring to legal battles and other hurdles that have delayed the planned startup of the $2 billion Permian Highway by several months.
Reporting by Scott DiSavino; Editing by Tom Brown
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