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Released October 09, 2019 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Infrastructure bottlenecks in the Permian Basin eased recently after two crude oil pipelines, EPIC Midstream's (San Antonio, Texas) natural gas liquids pipeline conversion and Cactus II, began taking product away from that area. A third pipeline, Gray Oak, is expected to begin operating next month. The three pipelines will add outbound transport capacity of about 2 million barrels per day to the Permian Basin, the country's most prolific unconventional oil region.
These pipelines are expected to end a two-year period where crude oil production in the basin exceeded outbound transportation capacity, leading to shipment delays and significant price discounting.
Click on the image at right to see Permian oil production mapped against its planned takeaway capacity.
It's unclear how long the equilibrium will last. Each day, about 4.5 million barrels of crude oil are pumped out of the Permian Basin, over four times the production level of a decade ago. And in its long-term Annual Energy Outlook (AEO), prepared in 2018 and released in early 2019, the U.S. Energy Information Administration's (EIA) "reference" case envisioned Permian production nearing 6 million BBL/d by the mid-2020s. Over the next decade or so, the report said, "growth in Lower 48 onshore crude oil production occurs mainly in the Permian Basin in the Southwest region. This basin includes many prolific tight oil plays with multiple layers, including the Bone Spring, Spraberry and Wolfcamp, making it one of the lower-cost areas to develop." In a few months, a new AEO with updated 2019 production data will be released.
Click on the images at right to see graphics on the Permian's historic production growth and its potential future growth.
For now, producers are seeing lowered differentials between West Texas Intermediate (WTI) and Brent, the global benchmark, largely due to the start of operations for the Cactus II and EPIC pipelines, which take crude from the Permian to the Gulf Coast, where it can be loaded on ships for export. WTI-Brent differentials have hovered in the $7 to $10 range for most of the last year, but recently they've fallen about 50% to about $5 per barrel as the Cactus II and EPIC pipelines neared completion.
Click on the image at right to see WTI-Brent crude oil price differentials over the last 14 months.
Several other pipeline projects are scheduled to begin construction early next year to ensure outbound pipeline capacity keeps pace with the expected rise of Permian crude oil production. If all four of these proposed pipeline projects are built as planned, they would add about 3 million BBL/d of new outbound pipeline capacity. These pipelines are:
Overall, Industrial Info is tracking 222 active oil & gas pipeline projects with a total investment value of about $33.1 billion being developed in Texas Zone 6, the heart of the Permian Basin.
"Pipeline developers operating in the Permian have been struggling to keep up with production growth there," commented Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "It takes a lot longer to gain approval and construct a pipeline than it does to bring on a new well, or a sibling well, so it's not surprising that production has outstripped takeaway capacity for a few years. But now, assuming these four planned pipelines get built, the market may be in a good place, where production will more or less equal takeaway capacity for the next few years."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
These pipelines are expected to end a two-year period where crude oil production in the basin exceeded outbound transportation capacity, leading to shipment delays and significant price discounting.
Click on the image at right to see Permian oil production mapped against its planned takeaway capacity.It's unclear how long the equilibrium will last. Each day, about 4.5 million barrels of crude oil are pumped out of the Permian Basin, over four times the production level of a decade ago. And in its long-term Annual Energy Outlook (AEO), prepared in 2018 and released in early 2019, the U.S. Energy Information Administration's (EIA) "reference" case envisioned Permian production nearing 6 million BBL/d by the mid-2020s. Over the next decade or so, the report said, "growth in Lower 48 onshore crude oil production occurs mainly in the Permian Basin in the Southwest region. This basin includes many prolific tight oil plays with multiple layers, including the Bone Spring, Spraberry and Wolfcamp, making it one of the lower-cost areas to develop." In a few months, a new AEO with updated 2019 production data will be released.
Click on the images at right to see graphics on the Permian's historic production growth and its potential future growth. For now, producers are seeing lowered differentials between West Texas Intermediate (WTI) and Brent, the global benchmark, largely due to the start of operations for the Cactus II and EPIC pipelines, which take crude from the Permian to the Gulf Coast, where it can be loaded on ships for export. WTI-Brent differentials have hovered in the $7 to $10 range for most of the last year, but recently they've fallen about 50% to about $5 per barrel as the Cactus II and EPIC pipelines neared completion.
Click on the image at right to see WTI-Brent crude oil price differentials over the last 14 months.Several other pipeline projects are scheduled to begin construction early next year to ensure outbound pipeline capacity keeps pace with the expected rise of Permian crude oil production. If all four of these proposed pipeline projects are built as planned, they would add about 3 million BBL/d of new outbound pipeline capacity. These pipelines are:
- Enterprise Grassroot Midland-to-ECHO III crude oil pipeline, developed by Enterprise Product Partners LP (NYSE:EPD) (Houston, Texas). This 502-mile, $1.8-billion project, scheduled to be able to move up to 450,000 BBL/d from Midland, Texas, to Houston, plans to begin construction next March and be operating by yearend 2021.
- Crane Permian-Gulf Coast Grassroot Jupiter crude oil pipeline, developed by Jupiter Energy Group (Houston), is a 650-mile, $1.2-billion project that will be able to move up to 1 million BBL/d from the Permian to Brownsville, Texas. It, too, is scheduled to kick off construction in March 2020 and be operating by the end of 2021.
- The Wink-to-Webster grassroot crude oil pipeline is a 650-mile, $1.2-billion project scheduled to be able to transport up to 1 million BBL/d of Permian crude from Wink, Texas, to multiple locations near Houston. Construction is scheduled to begin next February, and the project is expected to be operating by June 2021.
- The Permian-Nederland grassroot crude oil pipeline, a 500-mile, $850 million project is expected to stretch for 500 miles between the Permian to the Houston Ship Channel. It is designed to transport up to up to 600,000 BBL/d. Developed by Sunoco Logistics Partners LP (Midland, Texas), this project plans to begin turning dirt in March 2020 and be operating by April 2021.
Overall, Industrial Info is tracking 222 active oil & gas pipeline projects with a total investment value of about $33.1 billion being developed in Texas Zone 6, the heart of the Permian Basin.
"Pipeline developers operating in the Permian have been struggling to keep up with production growth there," commented Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "It takes a lot longer to gain approval and construct a pipeline than it does to bring on a new well, or a sibling well, so it's not surprising that production has outstripped takeaway capacity for a few years. But now, assuming these four planned pipelines get built, the market may be in a good place, where production will more or less equal takeaway capacity for the next few years."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
