FORT WORTH, Texas -- With the Permian Basin experiencing growth as a result of robust drilling and increased use of technology, NGL processing capacity has become constrained in the area. Additionally, NGL takeaway will be required to meet the needs of producers, Greg Smith, president of Permian and Midcontinent for DCP Midstream, said during a presentation at Hart Energy’s DUG Permian Basin Convention in Fort Worth, Texas.

“In short, producers need more processing capacity,” Smith said. To help address that need, DCP is currently developing the Sand Hills pipeline in the Permian to deliver NGL to fractionators located in Mont Belvieu, Texas. The $1 billion project will provide takeaway capacity for both the Permian and Eagle Ford basins and began receiving product in the Eagle Ford in October 2012. The company plans for the pipeline to begin receiving product from the Permian by 2Q 2013.

“Robust drilling in response to high crude prices and the use of technology constrained the basin, and NGL takeaway was needed,” Smith said. “We felt that this was the best way for DCP to meet the needs of the producing community, get their liquids to Mont Belvieu and reduce the curtailments that have occurred in the Permian.”

The Sand Hills pipeline will have a takeaway capacity of 200,000 b/d, which can be expanded to 300,000 b/d with the inclusion of additional pump stations.

In addition to the pipeline, DCP, which currently operates 17 gas processing plants in the Permian, has added more than 150 MMcf of gas processing capacity in the last two years. Smith said the company is currently building its 18th gas processing plant in the area, Rawhide, which will come on stream this summer with a processing capacity of 75 MMcf.

“The Permian itself counts for about a third of DCP’s NGL production at 130,000 b/d, so it’s obviously a very large part of DCP’s business,” Smith said. Specific to the Permian Basin, the company noted that it has seen strong drilling in the Wolfberry, Bone Springs and Wolfcamp plays.

Strong drilling in the Permian is driven by two main reasons. “One, the fact that it’s predominantly a crude play, and with $90-plus crude, that’s driving a lot of drilling,” Smith explained. “In addition to that, producers are taking the technology that they learned through shale drilling of natural gas and reallocating that to the crude side of the business.” Multistage fracturing and horizontal drilling also continue to have a major impact on production in the Permian.

“Many of the producers that I’ve talked to since assuming responsibility for the Permian have indicated that the Permian – if not the best – is certainly one of the best opportunities for their drill bit capital and for their acreage across the United States,” Smith added.

He noted that new petrochemical facilities are the “next domino that needs to fall.” With producers having found new resources in the ground in shale gas and tight oil plays through the use of new technology, midstream companies are now working on building infrastructure to handle the increased production.

In the short term, ethane and propane commodity prices have been driven down by oversupply. With the late winter in the northeast and Midwest, however, as well as additional export out of the Gulf Coast of propane, Smith said there has been some relief on propane prices. “In the long term, demand for propane and ethane will increase due to new petrochemical facilities being constructed and being brought online on the Gulf Coast as well as additional propane export facilities being placed into service,” Smith said.

With low natural gas prices, low liquids prices, and high demand for plastics across the world, the petrochemical industry should now focus on shipping products out of the Gulf Coast. “It’s the last domino that needs to fall in order to get all of the products ultimately to the markets,” Smith said.

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