With its $2 billion takeover of EagleClaw Midstream Ventures LLC, Blackstone Group LP on Monday became the latest company to bet on gas in a basin better known for its oil reserves. Its interest lies in “associated gas” — a term used to describe the gas that comes out of an oil well along with the crude. Gas volumes will rise fivefold in five years on the EagleClaw system, said David Foley, chief executive officer of Blackstone Energy Partners LP.
Gas output from the Permian, which accounts for more than a quarter of America’s oil production, has risen to a record every month this year, government data show. That’s driving deals in the region, including Targa Resources Corp.’s purchase of gas pipelines from Outrigger Energy and a deal by Williams Cos. to exchange its stake in a Texas gas-gathering system with Western Gas Partners LP-owned networks in Pennsylvania.
Drilling for Permian oil is covering a bigger area and moving south, boosting gas volumes, Foley said.
“We’ve got beachfront property, basically,” Foley said by phone. “And the beach is continuing to extend. We’ve already got, existing or under construction, three-quarters of a billion cubic feet per day of processing capacity” for natural gas.
Blackstone says it’s targeting the Permian Basin because crude production there is linked to global oil prices. In contrast, natural gas prices in eastern U.S. basins, such as the Marcellus shale, have been weighed down by a glut of supply.
Permian gas may be easily exported to Mexico via pipeline and as liquefied natural gas from terminals on the Gulf of Mexico, he said. Texas gas also sells at less of a discount to the benchmark Henry Hub in Louisiana, compared with Marcellus supplies, according to data compiled by Bloomberg.
“Export is the single biggest source of growth in natural gas demand in the U.S., and this asset is next door,” Foley said.