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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Crude oil production in the Permian Basin will have to be curtailed within the next three to four months because there will be no more outbound pipeline capacity available, a logistics consultant said in a June 13 webcast.
Taylor Robinson, president of PLG Consulting (Chicago, Illinois), said, "Outbound pipelines will reach their full capacity in the next three to four months and non-pipe options to get crude oil out of the Permian are rather limited." He predicted a pipeline bottleneck will last until late 2019, when new pipelines are scheduled to begin operating.
"This is not a short-term problem," he said, adding: "Production growth in the Permian has been phenomenal the last four years," rising to more than 3 million barrels per day (BBL/d) from about 1.5 million BBL/d four years ago. But outbound pipeline capacity has not kept up. "There is no spare pipeline capacity," he said.
The Permian Basin has been the centerpiece of the U.S. shale revolution. Crude oil production there has soared in recent years. Crude oil production there is expected to reach about 3.3 million BBL/d, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).
Click on the image at right to see crude oil production growth in the Permian Basin over the last decade.
Last week, market research firm IHS Markit predicted Permian crude oil production would soar to 5.4 million BBL/d in five years. If correct, the firm said, by 2022 production from that basin would be greater than every member of OPEC except Saudi Arabia.
Efforts to address the Permian's logistics challenges are underway. A large crude oil pipeline expansion project, Phase 1 of the Permian Express 3 Pipeline, began construction earlier this year. Construction of this $695 million project is scheduled to be completed this October. The developer, Energy Transfer Partners L.P. (NYSE:ETP) (Dallas, Texas), last month began soliciting binding commitments for up to 50,000 BBL/d on the pipeline, all the remaining uncommitted capacity on the 140,000-BBL/d project. The developer has said the project could be doubled if market conditions warrant it. When operating, that pipeline will carry crude oil from Garden City, Texas, to Wortham, Texas.
Energy Transfer Partners also is developing a second Permian pipeline project, the Permian-Nederland Crude Oil Pipeline, but that is not scheduled to begin construction until early 2019. That $550 million project is scheduled to be operating by April 2020. It is designed to carry up to 600,000 BBL/d of crude oil from Midland, Texas, to the Houston Ship Channel.
On June 12, the day before Robinson spoke, Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and Plains All American Pipeline L.P. (NYSE:PAA) (Houston, Texas) announced plans to build a multibillion-dollar crude oil and condensate pipeline in Texas, stretching from west of Midland to the Houston and Beaumont areas. The pipeline, as yet unnamed, would be designed to ship more than 1 million barrels of crude oil and condensate per day, Plains said in a news release. The pipeline would originate in both Wink and Midland, Texas, with delivery points in Webster, Baytown and Beaumont, Texas. A priority would be placed on using existing pipeline corridors to help limit potential community and environmental disruptions.
Other projects remain active. EPIC Midstream Holdings (San Antonio, Texas), is moving forward with the 730-mile EPIC Crude Oil Pipeline projects to carry oil and natural gas liquids from the Permian to Corpus Christi, reported the Houston Chronicle. And Phillips 66 (NYSE:PSX) (Houston, Texas) said it is moving forward with its planned Gray Oak Pipeline to carry crude from West Texas to Corpus Christi, Sweeny and Freeport, Texas, the newspaper added.
In the June 13 webcast, Robinson, the PLG Consulting president, said there were no economic, near-term alternatives to moving Permian crude by pipeline. Unlike the Bakken, where "crude by rail" surged a few years ago while pipelines were being built, the Permian does not have a high-volume rail loading terminal operating now. It would take 12 to 18 months to construct such a terminal, he estimated, and by that time, some of the planned pipelines would be operating.
Besides, he estimated transporting Permian crude by rail would add about $12 to the delivered cost of that crude. Looming outbound logistics challenges already have imposed a hefty price discount on Permian crude compared to the West Texas Intermediate (WTI) benchmark.
Trucking is an even less-attractive option, Robinson said on the webcast, which his company sponsored. Trucking Permian crude to market would cost at least $15 per barrel, and possibly as much as $17-$19 per barrel. Another reason "crude by truck" is an unattractive option in the Permian: there's a nation-wide shortage of commercial truckers. He projected only about 40,000 BBL/d could be trucked out of the Permian over the next three to six months.
"A lot of barrels will get trapped in the Permian over the next 12 months," the PLG Consulting president predicted.
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.
Taylor Robinson, president of PLG Consulting (Chicago, Illinois), said, "Outbound pipelines will reach their full capacity in the next three to four months and non-pipe options to get crude oil out of the Permian are rather limited." He predicted a pipeline bottleneck will last until late 2019, when new pipelines are scheduled to begin operating.
"This is not a short-term problem," he said, adding: "Production growth in the Permian has been phenomenal the last four years," rising to more than 3 million barrels per day (BBL/d) from about 1.5 million BBL/d four years ago. But outbound pipeline capacity has not kept up. "There is no spare pipeline capacity," he said.
The Permian Basin has been the centerpiece of the U.S. shale revolution. Crude oil production there has soared in recent years. Crude oil production there is expected to reach about 3.3 million BBL/d, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).
Click on the image at right to see crude oil production growth in the Permian Basin over the last decade.Last week, market research firm IHS Markit predicted Permian crude oil production would soar to 5.4 million BBL/d in five years. If correct, the firm said, by 2022 production from that basin would be greater than every member of OPEC except Saudi Arabia.
Efforts to address the Permian's logistics challenges are underway. A large crude oil pipeline expansion project, Phase 1 of the Permian Express 3 Pipeline, began construction earlier this year. Construction of this $695 million project is scheduled to be completed this October. The developer, Energy Transfer Partners L.P. (NYSE:ETP) (Dallas, Texas), last month began soliciting binding commitments for up to 50,000 BBL/d on the pipeline, all the remaining uncommitted capacity on the 140,000-BBL/d project. The developer has said the project could be doubled if market conditions warrant it. When operating, that pipeline will carry crude oil from Garden City, Texas, to Wortham, Texas.
Energy Transfer Partners also is developing a second Permian pipeline project, the Permian-Nederland Crude Oil Pipeline, but that is not scheduled to begin construction until early 2019. That $550 million project is scheduled to be operating by April 2020. It is designed to carry up to 600,000 BBL/d of crude oil from Midland, Texas, to the Houston Ship Channel.
On June 12, the day before Robinson spoke, Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and Plains All American Pipeline L.P. (NYSE:PAA) (Houston, Texas) announced plans to build a multibillion-dollar crude oil and condensate pipeline in Texas, stretching from west of Midland to the Houston and Beaumont areas. The pipeline, as yet unnamed, would be designed to ship more than 1 million barrels of crude oil and condensate per day, Plains said in a news release. The pipeline would originate in both Wink and Midland, Texas, with delivery points in Webster, Baytown and Beaumont, Texas. A priority would be placed on using existing pipeline corridors to help limit potential community and environmental disruptions.
Other projects remain active. EPIC Midstream Holdings (San Antonio, Texas), is moving forward with the 730-mile EPIC Crude Oil Pipeline projects to carry oil and natural gas liquids from the Permian to Corpus Christi, reported the Houston Chronicle. And Phillips 66 (NYSE:PSX) (Houston, Texas) said it is moving forward with its planned Gray Oak Pipeline to carry crude from West Texas to Corpus Christi, Sweeny and Freeport, Texas, the newspaper added.
In the June 13 webcast, Robinson, the PLG Consulting president, said there were no economic, near-term alternatives to moving Permian crude by pipeline. Unlike the Bakken, where "crude by rail" surged a few years ago while pipelines were being built, the Permian does not have a high-volume rail loading terminal operating now. It would take 12 to 18 months to construct such a terminal, he estimated, and by that time, some of the planned pipelines would be operating.
Besides, he estimated transporting Permian crude by rail would add about $12 to the delivered cost of that crude. Looming outbound logistics challenges already have imposed a hefty price discount on Permian crude compared to the West Texas Intermediate (WTI) benchmark.
Trucking is an even less-attractive option, Robinson said on the webcast, which his company sponsored. Trucking Permian crude to market would cost at least $15 per barrel, and possibly as much as $17-$19 per barrel. Another reason "crude by truck" is an unattractive option in the Permian: there's a nation-wide shortage of commercial truckers. He projected only about 40,000 BBL/d could be trucked out of the Permian over the next three to six months.
"A lot of barrels will get trapped in the Permian over the next 12 months," the PLG Consulting president predicted.
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.
