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Supply Runs Ahead of New Permian Pipelines

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The Daley Note: February 10, 2023

Whistler Pipeline was running nearly full before the start of a new lateral to the Midland Basin, according to new federal data, outpacing previous guidance from owner MPLX (MPLX). The early fill of Whistler is yet another sign that Permian natural gas supply growth is keeping pipeline egress tight out of the basin.

New quarterly data filed with the Federal Energy Regulatory Commission (FERC) shows Whistler Pipeline ran effectively full in 3Q22 at its capacity of 2 Bcf/d, well ahead of schedule. Previously, MPLX management had guided to the joint-venture pipeline filling up once the new lateral in West Texas entered service. The Midland lateral was completed in 4Q22, MPLX said in its latest earnings report.

According to FERC index of customer data, Whistler picked up several interruptible shippers in 3Q22, including contracts with EOG Resources (EOG) for 100 MMcf/d and Ovintiv (OVV) for 50 MMcf/d, to sell out the pipeline before the new lateral entered service.

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Whistler Pipeline owners include MPLX, operator WhiteWater Midstream, and a joint venture between Stonepeak and West Texas Gas. With the Midland lateral now operational, we anticipate Whistler will continue to run at its maximum capacity.

The latest FERC data jives with 4Q22 results reported by MPLX for its Gathering and Processing segment in the Permian Basin. The Tornado II plant expansion started in 4Q22, MPLX said. The company also expects to begin service on a second Preakness plant expansion in 1H24.

MPLX’s total Permian natural gas processing will reach 1.2 Bcf/d with these latest expansions. East Daley had forecast both plant expansions prior to the announcement in our company Financial Blueprint.

The early fill of Whistler is yet another sign that production growth is running ahead of new pipelines out of the Permian, keeping egress tight out of the basin. In East Daley’s latest Permian Supply and Demand Forecast, we forecast residue gas supply to grow by 1.52 Bcf/d (exit to exit) in 2023 (see figure).

MPLX is involved in several projects to expand Permian pipeline takeaway. Whistler plans a 0.5 Bcf/d compression expansion to come online in September 2023. Additionally, MPLX is a 5% owner in the Matterhorn pipeline, which is anticipated to come online in 3Q24 and add 2.5 Bcf/d of capacity.

Overall, we expect tight Permian egress through 1H24 until new infrastructure can accommodate supply growth. MPLX reported 4Q22 Adj. EBITDA of $1,454 million, right in line with East Daley's forecast and $3 million above consensus. – Alex Gafford Tickers: MPLX.

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