WTI Crude

Loading...

Brent Crude

Loading...

Natural Gas

Loading...

Gasoline

Loading...

Heating Oil

Loading...

Rotate device for more commodity prices

Will New Pipelines Be Enough To Handle The Permian Boom?

Pipeline

As production in the Permian Basin continues to increase, the accompanying infrastructure has struggled to keep up. Expansions to pipeline capacity are needed to handle the heavier flow, as more investment is pumped into the Permian and new production comes on line.

That’s got a host of Texas-based Permian players excited, as new pipeline projects are launched, existing lines are expanded and new acquisitions bring fresh capital into midstream ventures.

According to the EIA, the rise in Permian output is expected to add 420,000 bpd by the end of 2017. Permian production in April 2017 was measured at 2.3 million bpd according to the Drilling Productivity Report, an increase of 300,000 bpd from last year.

But existing pipelines can’t quite handle the load, and this has thrown spot prices off-kilter. WTI Midland, a local hub for the Permian, boasts a significant discount compared to WTI Cushing, though the discount spread isn’t quite as wide as it was a few years ago, when the Permian was just getting started. That’s just one indication of a glut on the supply-side, hinting that existing pipelines are carrying near their full capacity.

To handle the increased load, major pipeline expansions are underway. In April, Houston-based Enterprise Products Partners announced plans for a natural gas liquids (NGL) pipeline from gas processing plants in the Permian to storage facilities in Mont Belvieu, Texas. With an initial capacity of 250,000 barrels a day and a planned total capacity of 600,000 bbl/day, the line will be 571-miles long and is expected to be completed in 2019. Related: Oklahoma Taking Advantage Of Mexico’s Oil Boom

While Enterprise works to give NGLs a home, other companies are focusing on increasing capacity for crude. Plains All American Pipeline is increasing the capacity on the Cactus line by 140,000 bbl/day, while Magellan Midstream Partners is adding 100,000 bbl/day and Sunoco another 100,000 bbl/day to their lines. Even Enterprise, despite its plans for NGL, has opted to increase the capacity on its Midland-to-Sealy pipeline from 300,000 bpd to 450,000 bpd, according to the Houston Chronicle.

Other midstream plays are in the works as well. DCP Midstream and Kinder Morgan have joined forces to build and operate a natural gas pipeline, connecting the Permian to Gulf Coast markets 430 miles away. Magellan Midstream Partners is evaluating a pipeline project from the Permian to Corpus Christi, and is also planning an expansion of its 300,000 bbl/day line to Houston, boosting its capacity to 475,000 bbl/day. That line is currently in the midst of an expansion to 400,000 bbl/day which will be completed by the end of Q2 2017.

The demand for pipeline capacity accompanying the boom is attracting new midstream players. On May 4, San Antonio-based midstream NuStar Energy LP closed a deal acquiring the Dallas-based Navigator Energy Services LLC for $1.475 billion. The company owns 500 miles of pipelines and terminals, totaling 1 million bbl storage capacity. NuStar spent most of April issuing new shares to finance the deal.

There’s a chance that all this new capacity may not be enough. The EIA estimates total additions will equal 340,000 b/day, while the Enterprise projects will add another 450,000 bpd. A related issue is how and where all that capacity will be refined. With most of the refinery throughput on the Gulf Coast engineered for heavy crudes, and lighter crude refiners currently sated by cheap Nigerian imports, it’s believed that much of the new Permian output is destined for export. While facilities for exporting LNG, such as Cheniere’s LNG-export terminal at Sabine Pass, are starting to crop up in Corpus Christi and elsewhere, infrastructure for crude exports needs to be expanded to handle the growing volume of crude flowing east from the Permian. In 2016 U.S. crude oil exports to countries other than Canada rose sharply, according to EIA data, and there are strong reasons to suspect exports will increase further in 2017, despite the on-going price slump. Related: OPEC Confident In U.S. Shale’s Lack Of Longevity

Enthusiasm from Permian operators is strong, with Pioneer Natural Resources President and CEO Tim Dove predicting “hundreds of thousands of barrels and maybe many millions” in exports in the coming years, according to Oil & Gas Journal. Existing lines carry Texas oil and gas to Mexico, and the increase in Chinese refinery capacity for lighter crudes hint that the China market may be the ultimate destination for American crude exports.

In 2017, as Permian production increases, so too will the capacity of pipelines to carry both crude and NGLs to storage facilities and refineries along the Gulf Coast. Where it goes from there is open to debate, but there’s little doubt that midstream companies are ready to get in on the action. Even with prices hovering near $45 a barrel, there are few signs that the Permian boom will slow this year or the next.

By Gregory Brew for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News