Plains All American Fast-Tracks 2 Pipelines

Plains All American is fast-tracking two pipeline projects in West Texas in a bid to alleviate a worsening pipeline capacity shortage in the United States’ most productive oil region, Reuters reports, citing a company conference call.

The first of these, the Sunrise extension project, should start operating at partial capacity by the end of 2018, Plains said during the call. At full capacity, the extension will add half a million barrels daily to the flow from Midland to Colorado City and Wichita Falls, plus connections to Cushing, Oklahoma, where the national strategic petroleum reserve is kept.

The second project, Cactus II, will begin operating at partial capacity in the third quarter of 2019 and reach its full capacity of 670,000 bpd by April 2020, Plains All American said. Cactus II will ship crude from the Permian to Corpus Christi.

Oil producers in the Permian have been pressured by the combination of growing production and unchanging pipeline capacity, which has seen local crude plunge to a discount of as much as US$17 to the WTI benchmark.

The current pipeline capacity in the Permian is 3.1 million barrels daily. Railway capacity, according to S&P Platts, is around 315,000 bpd. However, the railway is mostly used to supply frac sand for the ever-hungrier wells. Production, as estimated by the Energy Information Administration, last month reached 3.33 million bpd and will further grow to 3.406 million bpd in August.

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The discrepancy between supply and transportation capacity has investors in shale oil worried, which in June led to a drop of US$15.6 billion in the market cap of the eight biggest oil companies with a presence in the Permian.

One new pipeline, with a capacity of 575,000 bpd, was completed earlier this year by Enterprise Products Partners and there is another 2.45 million bpd in new pipeline capacity coming on stream by the end of 2019, including the Cactus II.

By Irina Slav for Oilprice.com

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