MIDLAND, Texas (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.