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Lower Oil Production Hits Pipeline Operators Hard

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Permian Pipeline Capacity To Get A Shot In The Arm With New Cactus II

The most prolific oil-producing basin in the United States is set to get a pipeline capacity boost by the end of the third quarter, a source with direct knowledge of the matter told Reuters on Thursday.

Plains All American Pipeline’s Cactus II line is on track to be filled within a week—a necessary step prior to sending commercial quantities of crude oil through the pipeline. Oil will begin flowing on a regular basis by the end of the third quarter, the Reuters source showed.

The Cactus II system of pipelines moves oil from Wink, Texas to Corpus Christi, with a total capacity of 670,000 barrels per day at its full completion, according to Plains All American.

The Cactus II project will go a long way in relieving some of the capacity constraints in the region that have pressed down Midland crude prices in relation to WTI.

There has been a mad dash to increase takeaway capacity in the Permian region as production has outstripped its ability to move the oil, and Plains All American has already committed fully its entire available capacity, according to Kallanish Energy, much of which is committed to Trafigura. Trafigura signed last year a long-term agreement to move 300,000 bpd of crude and condensate through Plains’ Cactus II.

The excitement around this project—and many others like it—highlight the glaring problem of such a simple imbalance: it takes days to drill a well and years to build a pipeline, Bernadette Johnson, VP of market intelligence at Drillinginfo, told Dallas News last year. And production in the Permian has increased quickly. Pipelines, meanwhile, are in the works, but are coming online slowly as is the nature of the beast.

By Julianne Geiger for Oilprice.com

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  • Joe Harwell on June 28 2019 said:
    How tight is the capacity, really? Unless I'm missing something, Midland WTI has been trading basically at parity with Cushing for much of the year (including right now), hasn't it?

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