*

Matterhorn starts operations, relieving Permian

bottlenecks

*

Waha gas prices turn positive

*

Gas pipelines necessary for Permian crude production

growth

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Producers concerned Matterhorn will fill before more

capacity is

built

By Georgina McCartney

MIDLAND, Texas, Oct 18 (Reuters) - A new pipeline

carrying shale natural gas from west Texas toward export hubs on

the U.S. Gulf Coast has eased constraints that crashed local

prices this year, and will help pave the way for higher U.S. oil

production, energy executives said.

Pipeline companies largely quit adding new capacity

following the pandemic, when shale production dried up and

pipeline utilization plummeted. The 580-mile (933-km) Matterhorn

Express pipeline is the first new natural-gas pipeline built in

the Permian basin in three years.

Matterhorn began operations last month, relieving

bottlenecks that had forced producers at times to pay other

parties to receive their gas, or to seek state permits to burn

the gas.

The line, a joint venture between WhiteWater Midstream,

EnLink Midstream ( ENLC ), Devon Energy ( DVN ) and MPLX ( MPLX )

, can carry up to 2.5 billion cubic feet of gas per day,

adding 14% in new regional capacity as it ramps up this year.

The Permian basin, which straddles Texas and New Mexico,

accounts for half of U.S. crude output and is the second-largest

shale-gas producing region.

"Matterhorn has freed up space, and the price we are getting

for gas now has been positive for almost a month," said Mike

Oestmann, CEO of Midland producer Tall City Exploration. "We

produced a lot of gas that we not only didn't get paid for, we

paid for it to be taken away," he added.

Gas prices at the Waha hub in west Texas

have been broadly pricing above zero since mid-September, after

Matterhorn started operating. Last week, Waha prices reached

their highest level since mid-June, at $2.35 per million British

thermal units.

For oil and gas producers, the pipeline is helping drive up

profits with gas fetching higher prices, allowing them to

increase crude production growth with less gas flaring, analysts

said. Natural gas is a byproduct of oil production.

"If you cannot move the gas out and you have to increase

flaring levels or bring in other mitigating measures, then that

just really puts a ceiling on how much oil you can produce,"

said Jason Feit, advisor at consultancy Enverus.

Matterhorn will help unlock higher Permian oil output, said

David Seduski, head of North American gas analysis at

consultancy Energy Aspects. It estimates Matterhorn carried 0.6

bcf/d last week.

Most of the Permian's estimated 2025 oil-production growth

would be unfeasible without more gas pipeline capacity, said

Seduski, who forecasts an additional 350,000 barrels per day

next year.

A fifth of Permian oil producers polled in September

reported plans to increase well completions once the pipeline

bottleneck is cleared, according to the Federal Reserve Bank of

Dallas' quarterly energy survey.

Permian crude-oil production is forecast to rise by 6.1% to

6.27 million bpd this year, and hit 6.5 million bpd next year,

according to the Energy Information Administration, due in part

to improved drilling efficiency.

SHORT-TERM RELIEF

Matterhorn will likely be filled next year, resulting again

in pipeline constraints, market participants said.

Permian gas production is set to swell to 24.5 bcf/d for

2024, from 22.7 bcf/d in 2023, according to the EIA. It is

projected to reach 25.8 bcf/d in 2025.

"Matterhorn only gives you so long, maybe 12 to 18 months,

and then you need another pipe," Jim Simpson, CEO of advisory

firm East Daley, said in an interview.

The Blackcomb gas pipeline, which reached final investment

decision in July, will move another 2.5 bcf/d of natural gas

from the Permian to south Texas. It will start up in the second

half of 2026.

The period between Matterhorn filling and Blackcomb starting

operations may depress Waha gas prices as producers face more

bottlenecks, said Jay Stevens, director of market analytics at

Aegis Hedging.