Pipeline Politics: Understanding the Midstream Sector

Between the drilling rig and the gas pump lies an invisible empire of steel and infrastructure—the midstream sector. While Landman focuses primarily on upstream production and the land deals that make it possible, the midstream sector is where the rubber truly meets the road. Understanding how oil and gas moves from the wellhead to the refinery reveals why pipeline projects become political flashpoints and why transportation capacity can make or break a drilling boom.

What Is the Midstream Sector?

The oil and gas industry divides into three sectors:

• Upstream: Exploration and production—finding and extracting oil and gas
• Midstream: Gathering, processing, storing, and transporting—moving product from wellhead to market
• Downstream: Refining, marketing, and distribution—turning crude into gasoline and other products

The midstream sector serves as the crucial link between production and refining. Without adequate midstream infrastructure, even the most prolific oil field becomes worthless—you can't sell what you can't move.

The Components of Midstream

Gathering Systems

Gathering systems are the capillaries of the midstream sector—small-diameter pipelines that collect oil and gas from individual wells and flow them to central facilities. A single well's production is too small to justify a major pipeline, but hundreds of wells feeding into a gathering system create the volume needed for efficient transportation.

These systems are often the first bottleneck when a new field develops. Until gathering infrastructure is built, producers may have to truck their product to processing facilities—expensive and inefficient, but sometimes the only option.

Processing Plants

Raw natural gas straight from the well isn't ready for market. It contains water vapor, carbon dioxide, hydrogen sulfide, and valuable natural gas liquids (NGLs) that must be separated and processed.

Processing plants remove impurities and separate the component parts:

• Methane: The primary component of natural gas, sent to market via pipeline
• NGLs: Ethane, propane, butane, and natural gasoline—valuable products with their own markets
• Contaminants: CO₂, H₂S, and water removed or treated

The Permian Basin is seeing massive processing expansion, with operators adding 3.7 Bcf/d of processing capacity between 2024 and 2026 to handle growing production.

Transportation Pipelines

Once processed, products move through major transmission pipelines to refineries, chemical plants, and export terminals. These are the arteries of the energy system—large-diameter, high-pressure lines that can move millions of barrels of oil or billions of cubic feet of gas daily.

Major pipeline categories include:

• Crude oil pipelines: Move unrefined oil to refineries
• Natural gas pipelines: Transport processed gas to markets
• NGL pipelines: Carry valuable liquids to fractionation facilities
• Refined product pipelines: Move gasoline, diesel, and jet fuel to distribution terminals

Storage Facilities

Storage provides flexibility in the system. Tank farms store crude oil, underground caverns hold natural gas, and NGL storage facilities buffer between production and demand. The famous Cushing, Oklahoma storage hub—where WTI crude oil prices are set—can hold over 90 million barrels.

The 2024 Permian Basin Pipeline Boom

The Permian Basin's explosive production growth has strained midstream infrastructure to its limits. In 2024, several major projects came online to address bottlenecks:

Matterhorn Express Pipeline

The Matterhorn Express Pipeline began service in September 2024, adding 2.5 billion cubic feet per day (Bcf/d) of natural gas takeaway capacity. The pipeline transports gas from the Permian Basin to Katy, near Houston, significantly relieving infrastructure constraints that had caused natural gas prices at the Waha Hub to go negative at times during 2024.

NGL Pipeline Expansion

Natural gas liquids are often more valuable than the natural gas itself, and 2024 saw significant NGL pipeline additions:

• Targa's Daytona NGL Pipeline: 400,000 b/d capacity, transporting Y-grade NGLs from Permian to North Texas, connecting to Mont Belvieu
• Enterprise's Seminole Red Pipeline: 280,000 b/d capacity, converted back to NGL service
• ONEOK's West Texas NGL Loop: Expanded by 40,000 b/d to 515,000 b/d total capacity

Future Projects

The pipeline buildout continues with major projects expected by 2027:

• Apex Pipeline: 2.0 Bcf/d natural gas capacity
• Blackcomb Pipeline: 2.5 Bcf/d natural gas capacity
• Saguaro Connector Pipeline: 2.8 Bcf/d, connecting to Mexican markets
• Hugh Brinson Pipeline: 1.5 Bcf/d initial capacity (Phase I by late 2026)

Combined, these projects will add 7.3 Bcf/d of natural gas takeaway capacity, fundamentally reshaping Permian Basin transportation dynamics.

The Keystone XL Story: When Pipelines Become Political

No pipeline project better illustrates the political dimensions of midstream infrastructure than the Keystone XL Pipeline. Its 13-year saga demonstrates how energy infrastructure becomes entangled with environmental policy, indigenous rights, property disputes, and international relations.

The Project

TransCanada (now TC Energy) proposed Keystone XL in 2008 to transport approximately 830,000 barrels per day of crude oil from Alberta's oil sands to refineries on the U.S. Gulf Coast. The project would have created the most direct route for Canadian crude to reach American refining capacity.

The Opposition

Environmental groups, Indigenous communities, and landowners opposed the project:

• Environmental concerns: Tar sands oil is thicker and more corrosive than conventional crude, raising spill risks
• Climate impact: Critics argued the pipeline would enable expanded oil sands production, increasing carbon emissions
• Land rights: The route crossed Native American territories and private lands, generating eminent domain disputes
• Water resources: The pipeline would have crossed the Ogallala Aquifer, a critical water source for agriculture

The Political Saga

Keystone XL became a political football:

1. 2012: Obama administration denies permit
2. 2015: Obama administration denies permit again
3. 2017: Trump administration approves project
4. 2017-2020: Legal challenges continue
5. January 2021: Biden revokes presidential permit on first day in office
6. June 2021: TC Energy abandons the project (only 8% constructed)

The cancellation triggered international disputes, with investors filing claims against the U.S. government under trade agreements.

Why Pipeline Capacity Matters for Producers

For companies like the fictional M-Tex in Landman, pipeline access is existential. Here's why:

Price Differentials

When pipeline capacity is constrained, local prices collapse while distant prices remain high. In 2024, natural gas at the Permian's Waha Hub sometimes traded at negative prices—producers literally had to pay someone to take their gas—while prices at the Gulf Coast remained positive. The difference? Pipeline capacity.

Production Decisions

Without pipeline access, producers face difficult choices:

• Flare gas: Burn excess natural gas at the wellhead (wasteful and regulated)
• Truck product: Expensive but provides flexibility
• Shut in wells: Stop production entirely until capacity becomes available
• Sell at distressed prices: Accept whatever the constrained market will pay

Takeaway Contracts

Smart producers lock in pipeline capacity through long-term contracts. These "take-or-pay" agreements guarantee space on pipelines but require payment whether or not the producer uses the capacity. For mid-sized operators, securing takeaway capacity is as important as drilling successful wells.

The Business of Midstream

Master Limited Partnerships (MLPs)

Many midstream companies are structured as Master Limited Partnerships (MLPs), which offer tax advantages and pay substantial distributions to investors. Major midstream MLPs include Energy Transfer, Enterprise Products Partners, and MPLX.

Fee-Based Revenue

Unlike upstream companies that depend on commodity prices, midstream operators often earn fee-based revenue—charging per barrel or per cubic foot moved through their systems. This provides more stable cash flows, though volumes still depend on production levels.

Consolidation Trends

The midstream sector has seen significant consolidation, with larger players acquiring smaller systems to build integrated networks. Scale matters—the more infrastructure you control, the more you can offer producers and the better your competitive position.