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DJ Basin Producers Riding ‘Carousel of Constraints’

In 2017, DJ Basin oil production growth was second only to that of the Permian. While the DJ Basin has a small footprint relative to other US oil plays, the play’s favorable economics generates significant cash for many of its top operators including Anadarko, Noble and PDC Energy. Infrastructure constraints are limiting production growth in many of the oil producing basins across the country, and the DJ Basin faces perhaps the most diversified set of constraints over the coming years. With oil prices holding steady over $60/bbl, how much growth could be ahead for the DJ?

The DJ Basin is expected to continue riding a ‘Carousel of Constraints’ through 2020 as regional producers await the completion of several announced infrastructure projects to serve growing associated gas and NGL production.

The DJ Basin is a region where investment decisions are primarily driven by the price of crude, but it also produces significant amounts of associated gas and NGLs.   That associated gas must be processed and both the residue gas and NGLs must be moved out of the basin in order to continue producing the oil.  The chart above shows BTU Analytics’ expected annual average utilization rates of key oil, gas, and NGL infrastructure serving the region.  These utilizations are based on nameplate capacities, and to the extent facility and pipeline utilizations are over 90%, it is likely that constraints within the basin are also emerging. While several projects have been announced to address impending constraints, project timing will affect the pace of potential production growth.

In 2018, the major constraint limiting DJ Basin oil production growth is gas processing capacity (dark blue in chart above).  However, that constraint is expected to be alleviated by new infrastructure beginning later this year, and by the end of 2019, 1.3 Bcf/d of new processing plants are expected to come online.  At that point, production will be able to grow until   gas and NGL pipeline takeaway constraints are reached, which is expected in 2019.  Beyond 2019, the completion of Tallgrass’s Cheyenne Connector gas pipeline project and Oneok’s Elk Creek NGL pipeline out of the Bakken are expected to solve the gas and NGL takeaway constraints.  This will allow the DJ to grow again, that is until things come full circle and gas processing constraints again become a limiting factor in 2021.

Which basins are in need of new infrastructure?  How much crude can the US produce and how quickly if crude prices run?  Request a sample of our Oil Market Outlook for these answers and more.

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Erika Coombs is Senior Manager of Energy Markets at BTU Analytics. She leads the team to deliver energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also oversees BTU Analytics’ oil and gas product suite which includes research on upstream, midstream, breakeven economics, and commodity pricing dynamics. She holds an M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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