In our latest Short-Term Energy Outlook (STEO) for August 2024, the U.S. Energy Information Administration (EIA) forecasts a robust growth trajectory for U.S. crude oil and natural gas production, with the Permian Basin at the forefront of this expansion. Driven by significant gains in well productivity, advancements in drilling and completion technologies, and the development of critical pipeline infrastructure, the Permian region is expected to play a pivotal role in boosting national output. This report delves into the factors underpinning this growth, offering insights into how the Permian is poised to sustain and even accelerate its contribution to U.S. energy production through 2025.
Permian Production Forecast Growth: Key Insights
1. Overview of Production Growth: The U.S. Energy Information Administration (EIA) projects significant growth in crude oil and natural gas production through 2025, driven predominantly by the Permian Basin. This forecast anticipates an average crude oil production of 13.7 million barrels per day (b/d) and marketed natural gas production of 114.3 billion cubic feet per day (Bcf/d) in 2025. The Permian region, spanning western Texas and eastern New Mexico, is expected to be the primary contributor to this growth due to improvements in well productivity, the expansion of pipeline infrastructure, and sustained high crude oil prices.
2. Drilling Productivity Metrics: The EIA’s Short-Term Energy Outlook (STEO) incorporates a variety of drilling productivity metrics to assess regional production performance. Key metrics include:
- Active Rigs: The Permian region has consistently maintained a higher number of active rigs than the rest of the Lower 48 states combined, underscoring its central role in U.S. production.
- Drilled but Uncompleted Wells (DUCs): The decline in DUC inventory is less pronounced in the Permian, indicating that the region is drilling new wells at a pace that keeps up with or exceeds completion activities.
- New Well Production: Newly completed wells in the Permian have demonstrated impressive initial production rates, particularly in July 2024, where they averaged 433,000 b/d for crude oil and 780 million cubic feet per day for natural gas.
3. Factors Driving Well Productivity:
- Technological Advancements: Operators in the Permian are leveraging advanced drilling and completion techniques, including longer lateral lengths, optimized well spacing, and enhanced fracturing designs. These improvements have led to higher initial production rates from new wells and have offset the natural production declines from existing wells.
- Efficiency Gains: The region’s continued ability to complete a high number of wells each month, despite a declining rig count, points to significant efficiency gains in operations. These gains are reflected in the growing production from new wells, which is more than compensating for the decline in output from older wells.
4. Regional Production Projections:
- Crude Oil: Permian crude oil production is forecasted to increase by 430,000 b/d from 2023 to 2024, reaching 6.3 million b/d, and further rising to 6.6 million b/d in 2025. This growth is attributed to the ongoing improvements in drilling productivity and well efficiency.
- Natural Gas: Marketed natural gas production in the Permian is expected to rise by 1.9 Bcf/d in 2024 and by another 1.0 Bcf/d in 2025, averaging 25.8 Bcf/d in 2025. The majority of this natural gas is associated with crude oil production, making it highly dependent on oil-directed drilling activities.
5. Infrastructure Expansion:
- Pipeline Capacity: Historically, Permian production has been constrained by limited pipeline capacity, leading to bottlenecks in transporting crude oil and natural gas to demand centers. However, recent and upcoming infrastructure projects are set to alleviate these constraints. For instance:
- Gray Oak Pipeline Expansion: Enbridge plans to expand this pipeline’s capacity by 120,000 b/d by the end of 2025, providing more room for crude oil takeaway from the Permian.
- Matterhorn Express Pipeline: This 580-mile pipeline, scheduled to come online in Q3 2024, will have the capacity to transport up to 2.5 Bcf/d of natural gas from the Waha Hub in West Texas to Katy, Texas, ensuring better connectivity between production sites and end markets.
6. Conclusion: The Permian Basin remains the cornerstone of U.S. crude oil and natural gas production growth, bolstered by technological advancements, improved well productivity, and strategic infrastructure investments. As new pipeline projects come online, the region’s ability to meet both domestic and global energy demand is expected to strengthen further, securing its role as a critical energy hub well into the future.
