Producers in the Eagle Ford Shale of South Texas are having to take the bad with the good. The good: abundant oil and liquids-rich gas production in an era of very low dry gas prices. The bad: a dearth of infrastructure to handle the play's robust output.
Gaylon Gray is manager of engineering and operations for TexStar, the midstream unit of producer BlackBrush Oil & Gas. He spoke at American Business Conferences' Eagle Ford Midstream Infrastructure Summit Wednesday in Houston on takeaway capacity and gas quality issues.
"Bottom line: many producers are currently in a bind and lack a destination for their rich gas," Gray said.
While the boom continues in the oil and liquids-rich Eagle Ford, the region lacks the infrastructure producers need to handle all of their rich gas. And what is on the ground is aging and full, Gray said. Additionally, legacy capacity was designed to handle lean gas.
Producers have found unexpected levels of hydrogen sulfide in large areas of the Eagle Ford, he said. There is limited large-scale treating capacity in the area. There are timing and other considerations affecting the permitting of high-pressure sour gas lines, and "few midstream companies have a desire to construct, operate and permit assets to handle sour gas," Gray said.
DCP Midstream's Richard Cargile, president of the company's southern business unit, also spoke at the conference.
Right now the problem facing Eagle Ford producers is natural gas liquids (NGL) capacity, he said. That should be sorted out sometime next year as multiple projects under way by DCP and others come on line. Next, producers will be plagued by a shortage of gas processing capacity, Cargile said. Longer term, the issue will be residue gas takeaway capacity, he said.
"It's an infrastructure desert out there," Cargile said of the booming South Texas play.
TexStar has 240 miles of low-pressure sour gas gathering lines, most of which were installed over the last year, Gray said. The company also is expanding a centralized gas treating and compression facility and has plans to expand gathering to "substantially increase" its footprint in Atascosa, La Salle, McMullen and Frio counties.
But laying new pipelines is not a quick process, nor is it inexpensive in the Eagle Ford, Gray said. Right-of-way costs have increased substantially in just the last year. Pipe costs have increased by 30 % over the last 12 months due to increases in steel prices. Lead times for pipe are an average of two to three months.
Eagle Ford producers are facing limited to no capacity available on some pipelines with available capacity going for premium prices. Additionally, "pricing is substantially skewed in the processors' favor," Gray said.