Half of all crude oil pipelines across the United States are not being utilized amid lower fossil fuel production following the outbreak of the global coronavirus pandemic, energy consultancy Wood Mackenzie has reported as quoted by Reuters.
Prior to the pandemic, the utilization rate of U.S. oil pipelines stood at 60 to 70 percent, but now it’s down to 50 percent as production dropped from a record 13 million bpd to 11 million bpd.
The average, however, is not distributed equally across the country’s oil fields. The Gray Oak Pipeline in the Permian, for example, is being utilized at 94 percent, according to Wood Mac’s head of oil data, Ryan Saxton. The BridgeTex pipeline, which ships oil from Midland and Colorado City to Houston, is being utilized at 70 percent of its capacity.
This state of affairs is intensifying competition in the midstream oil sector as pipeline operators have to fight for more barrels. It is, however, something that is not happening for the first time. In the boom stage of a commodity cycle in oil and gas, the industry rushes to build new transport capacity only to find out it is excessive during the bust stage.
The last such rush in the United States took place in the Permian and was prompted by an actual shortage of pipeline offtake capacity, which was affecting the prices of the crude pumped in the most productive U.S. shale oil play.
A string of new pipeline projects alleviated the situation and helped boost prices, but then the pandemic hit, rendering much of that pipeline capacity unnecessary. Yet production in the Permian is once again on the rise, with the Energy Information Administration forecasting it could hit 5 million bpd next year. Total shale oil production is seen topping 8.43 million barrels daily in January 2022.
By Charles Kennedy for Oilprice.com
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