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Pipeline Operators Lure Texas Shale Producers With Discounts

Large pipeline operators in the U.S. shale patch are reducing fees to keep their upstream customers shipping crude from the Texas oilfields to the U.S. Gulf Coast amid a decline in demand in the pandemic.  

Kinder Morgan, for example, is offering a discount of around 50 percent on its pipeline in the Eagle Ford shale play for some of its current customers, people with knowledge of the issue told Bloomberg.

Another pipeline operator, Magellan Midstream Partners, is in talks with customers whose contracts should be renewed later this year about potentially offering lower tariffs on the BridgeTex system in the Permian, Bloomberg’s sources said. 

Energy Transfer, for its part, is offering a temporary volume incentive rate for shippers on the Permian Express 2 and Permian Express 3 pipelines.

Last month, Reuters reported that Magellan Midstream Partners had even offered to its customers the option to ship crude on its pipeline only when market conditions are favorable. This approach differs from the typical take-or-pay contracts between an upstream and a midstream company for moving oil out of a production center.

After the oil price crash in March, pipeline infrastructure companies started to announce deferrals of final investment decisions and start-up dates for planned oil and gas pipelines, especially in the Permian, which suddenly found itself with too much capacity as production and consumption of oil struggled to recover from the pandemic-driven crisis.

The latest announcement of a canceled oil pipeline came from Enterprise Products Partners, which said in September that it was scrapping the 450,000 barrels per day Midland-to-ECHO 4 crude oil pipeline project.

Current pipeline capacity in the Permian is exceeding production so much that in a year or two, when pipelines currently under construction are completed, Permian producers could find themselves using just half of the available takeaway infrastructure, according to analysts.

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By Tsvetana Paraskova for Oilprice.com

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