Permian Maintenance
In order to carry out necessary inspections and maintenance, the Permian Highway Pipeline- an intrastate natural gas pipeline connecting the Permian Waha area with mainline connections in Katy and other Texan Gulf Coast markets- will be reducing total pipeline capacity.
The first reductions will take place between September 26th and October 2nd and will see capacity reduced by 280 MMcf/d, from 2.1 Bcf/d to 1.82 Bcf/d. The second round of reductions will occur between October 3 rd and October 4 th, reducing capacity by another 470 MMcf/d, from 1.82 Bcf/d to 1.35 Bcf/d.
October 4 th will be the last day of planned inspections and maintenance, meaning a return to the nameplate capacity of 2.1 Bcf/d thereafter. As a result of the capacity reductions, Permian production is expected to drop, with the most pronounced to be felt on October 3 rd and 4 th.
Permian Taxes
In an attempt to discourage venting and flaring by natural gas producers, the state of Texas has passed a new bill, the Texas House Bill 591 (HB591). The legislation offers the carrot of severance tax exemptions for gas produced from specific wells that would otherwise have been vented or flared. The bill took effect on September 1 st, categorizing wells into three types with set criteria required for each to gain exemptions. The three well types are:
(A) those linked to pipelines but lacking takeaway capacity,
(B) those unconnected due to technical or financial constraints,
(C) those without any contractual obligations to pipeline operators.
Each type carries its own exemption criteria, including joint applications from well and pipeline operators, verification of pipeline capacity, and certification of permissible flaring days. By offering severance tax exemptions, the bill financially incentivizes producers to minimize or stop the venting and flaring of gas altogether.
The severance tax in Texas is 7.5% of the market value of the gas produced. With sub-regional natural gas prices at approximately $2 / MMBtu, this equates to a 15-cent per MMBtu tax incentive. As such, the bill is a significant motivator for producers and will likely see Permian production go beyond current predictions, if only by 100 MMcf/d or 200 MMcf/d.
Market Update
Frac crew counts in the Lower 48 US have returned to yearly lows, holding around 217.
Frac crew counts are expected to bottom out in mid-October, after which producers traditionally plan periods of increased activity- well completions and TILs (Turn-In-Lines)- to take advantage of higher winter natural gas prices.
Rig counts in the Lower 48 US are also approaching yearly lows of 638.
Rig counts are also expected to level out in mid-October as producers drill more wells and bring in more frack crews to correspond with seasonally higher winter pricing and the record-high contango in the forward natural gas market.
