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Plains All American Expands Permian Pipeline Network

Oil pipelines

Pipeline operator Plains All American said it had expanded the capacity of its network in Texas, launching its Sunrise pipeline from the Permian to Cushing, Oklahoma, which boosted overall daily volumes to between 300,000 and 350,000 barrels, Reuters reports, citing the company’s third-quarter earnings call.

Earlier estimates for the capacity of the expanded network had suggested daily volumes of 200,000-250,000 bpd of crude. The news should be very welcome for Permian producers who have been grappling with pipeline capacity shortages amid fast-growing production. The Sunrise pipeline’s total capacity is as much as half a million barrels daily. Its launch has already affected prices positively, lifting them from four-year lows.

As of July, the pipeline capacity in the Permian was 3.1 million bpd, according to S&P Global Platts calculations, with production at 3.5 million bpd. However, there is a total 2.6 million bpd in new capacity coming online soon: the additional barrels should begin to flow in full by the third quarter of 2019, S&P Global Platts reported.

There is even more capacity coming online in later years, but this has sparked concern—vague for now—that if prices take a dive again, which is always a possibility, Permian field and pipeline operators could end up with stranded capacity as production growth slows down. However, this possibility is still only hypothetical, so the news about additional pipelines should immediately help producer get a better price for their crude; they’ve had to sell at a substantial discount to WTI because of the pipeline bottlenecks in recent months.

Others are upbeat about the Permian’s production growth prospects. “In the past 24 months, production from just this one region—the Permian—has grown far more than any other entire country in the world,”  Daniel Yergin, vice chairman of IHS Markit said in August, commenting on the future of the star shale play in the United States. “Add an additional 3 mbd by 2023—more than the total present-day production of Kuwait—and you have a level of production that exceeds the current production of every OPEC nation except for Saudi Arabia.”

By Irina Slav for Oilprice.com

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