The midstream industry had a favorable year in 2023, witnessing higher investment, M&A, and notable progress in infrastructure development. Looking forward to 2024, we expect a mixed but business as usual outlook for the midstream industry. Key trends to keep an eye on are the following:
- The Permian takeaway capacity outlook remains a difficult balancing act between surging production and infrastructure development. Rising gas production in the Permian has already led to the build-out of additional takeaway capacity from expansions of existing gas pipelines and WhiteWater Midstream’s Matterhorn Express Pipeline which will add new capacity of 2.5 billion cubic feet per day (Bcf/d) by the third quarter of 2024.
- Permian oil production is expected to reach ~6.5 million barrels per day (bpd) by the end of 2024 with play having a sufficient takeaway capacity of over 7.5 million bpd. However, it is seemingly headed towards a capacity shortage by 2027 with the current pace of oil production growth. To address this, Enbridge is evaluating expansion of Gray Oak pipeline by 200,000 bpd.
- Lack of sufficient takeaway capacity remains a problem for Appalachian gas producers, resulting in production remaining flat through 2024 averaging ~25 Bcf/d, leading to market volatility. After several hiccups, the Mountain Valley Pipeline project made significant construction progress and is targeted to be completed by the first quarter of 2024 adding new takeaway capacity of 2.0 Bcf/d.
- New pipelines adding up to over 20 Bcf/d of natural gas capacity are being built in Texas and Louisiana to feed new LNG export terminals. For instance, WhiteWater Midstream is constructing a 39-mile 1.7 Bcf/d pipeline and Cheniere Corpus Christi Pipeline is constructing a 21-mile 1.5 Bcf/d pipeline to deliver natural gas to the Corpus Christi Stage III with LNG export capacity of over 10 million tons per annum (mtpa).
- Canada’s Trans Mountain Pipeline Expansion project is reportedly over 95% complete and expected to come online early this year, nearly tripling the current oil transportation capacity of 300,000 bpd to 890,000 bpd from Alberta to the Pacific coast. Currently, over 95% of Canadian crude oil exports go to the U.S. and expansion will provide Canadian oil producers with additional customer options. This will pose challenges to U.S. Gulf Coast refiners as we discuss in our refining outlook.
- An increasing amount of natural gas with high nitrogen content is expected in 2024, primarily from certain areas in the Midland Basin. This poses challenges for LNG production as it lowers the heating value of the LNG and can disrupt the liquefaction and transportation processes. Freeport LNG has already faced difficulties since the Permian Highway Pipeline went into service. The upcoming Matterhorn Pipeline, set to begin in late 2024, may worsen the issue by bringing in more high-nitrogen gas to Freeport’s main supply area.
- Growing demand for cleaner marine fuels and the policy push for decarbonization will drive development of LNG bunkering facilities and transportation infrastructure to serve a wide range of ports and ships. For instance, Seapath, a subsidiary of Libra, and Houston-based energy infrastructure company, Pilot LNG, have formed a joint venture to develop, construct, and operate an LNG bunkering facility with 300,000 gallons per day (gpd) of LNG production capacity, in the greater Houston/Galveston area of Texas, with operations set to begin in early 2026. ADI continues to track and publish North American and global assessments of the small-scale LNG market.
- While natural gas liquid (NGL) pipelines are being underutilized, the utilization rate of fractionation facilities is expected to range between 95% and 100% through 2024, with the U.S. Gulf Coast fractionation volumes currently at ~4.3 million bpd. Companies are thus investing in additional fractionation capacity by expanding current plants or constructing new ones. Several key players including Targa Resources, ONEOK, and Enterprise are making substantial investments in fractionation infrastructure with plans to expand fractionation at Mt. Belvieu by a minimum of 800,000 bpd by the end of 2025.
- The global demand for renewable energy has surged due to environmental concerns leading to increased opportunities for clean energy transition in the midstream sector. The IRA incentivizes renewable natural gas (RNG) production from organic waste, offering a baseline investment tax credit of 6% of certain costs among other incentives. TC Energy made a $29 million investment in an RNG facility in Tennessee in 2022 which is expected to come online in 2024. Also, Enbridge recently acquired 7 gas-to-RNG facilities in the U.S. from Morrow Renewables for $1.2 billion. We expect more midstream companies to follow suit although RNG prices and overall economics will continue to be volatile.
- The midstream oil and gas industry will continue to face challenges related to ESG integration and decarbonization in 2024 resulting in continued emphasis on methane emissions reduction, renewable energy, technological advancements, and a commitment to social responsibility. To give an example, Cheniere Energy is partnering with Mitsubishi Heavy Industries on a carbon capture and storage project at its liquefaction facility in Corpus Christi, TX, MPLX is investing in digital technologies to optimize pipeline operations and reduce methane emissions, and Kinder Morgan will transport biogas produced from landfills and wastewater treatment facilities.
- M&A is expected to continue in 2024 driven by a lower growth environment and increasing regulations as companies aim to gain scale, strategically position themselves for growing export markets, and optimize existing assets. Recent activities include Williams acquiring Cureton Midstream and the remaining 50% stake in Rocky Mountain Midstream and Kinder Morgan purchasing South Texas natural gas pipelines from NextEra Energy Partners.
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