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Despite the ongoing rush to build oil pipelines to carry crude from the Permian to the Gulf Coast and an overbuild in the short-term, the fastest-growing U.S. shale play will need additional pipeline capacity up to 500,000 bpd by the end of 2030 to ship soaring crude output to markets, Wood Mackenzie said in new research this week.
Midstream operators are set to add 4 million bpd of Permian-to-Gulf Coast pipeline capacity by the end of 2022, creating a moderate overbuild in takeaway capacity in the early 2020s, according to the energy consultancy.
However, WoodMac believes that even after the current build-out is completed, the Permian will still need at least 300,000-500,000 bpd of crude takeaway capacity in the long-term, by 2030, and cited three reasons for its forecast.
First, WoodMac expects resilient Permian basin oil production to continue into the 2030s. Next, between 2021 and the middle of the 2030s, pipeline capacity will fill up on routes to export destinations. And third, the long-haul capacity out of the Permian will need a slight boost in the early 2030s, according to Wood Mackenzie.
Currently, “The rapid addition of pipeline capacity will result in two to three years of overbuild, before normal long-haul capacity supply and demand conditions begin to re-emerge,” the consultancy said.
“As production growth expands well into the 2030s, US Gulf Coast-bound pipeline capacity will tighten. By the mid-2030s, Permian-to-Gulf Coast pipeline utilisation will surpass 92% in the absence of further investment, necessitating pipeline expansions or greenfield capacity,” said John Coleman, principal analyst, North America crude markets at WoodMac.
Production outpaced pipeline takeaway capacity in the Permian in early 2018, which weighed heavily on the Midland oil prices compared to other U.S. benchmarks. Companies are currently rushing to complete and place into service more pipelines to relieve the bottlenecks, and some are converting pipelines from shipping natural gas liquids (NGL) to crude oil to further ease the takeaway capacity congestion.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.