American Oil and Gas Reporter - September 2020 - 64

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SpecialReport: Permian Powerhouse
With potential coronavirus-related
risks still looming very large in any projection of the pace of economic recovery,
many questions remain about what the
ups and downs in Permian production
mean to takeaway capacity and future
infrastructure expansions. But let's break
it down, starting with crude oil, which
is, after all, the primary focus of producers
in the Permian.

FIGURE 2
New and Planned Permian Crude Oil Pipelines

Midland
Orla

Wink
Wink-to-Webster

Crane

Midland-to-ECHO III

Cactus II

Houston

Oil Pipeline Capacity
Oil production averaged 4.56 MMbbl/d in December 2019, with about 10%
of that total consumed by refineries
within or near the Permian and the other
90% (4.12 MMbbl/d) transported out of
the Permian, virtually all of it in pipelines.
Our forecast at the end of last year
(dotted yellow line in Figure 1) was that
Permian oil production would average
4.85 MMbbl/d in 2020 and grow to 5.23
MMbbl/d in 2021. Then came COVID19 and stay-at-home orders. By May,
Permian crude production had fallen to
4.06 MMbbl/d, a 15% decline from
March. The rebound since then has been
anemic and uneven, with production averaging 4.09 MMbbl/d in June and 4.22
MMbbl/d in July, before slipping again
to 4.14 MMbbl/d in August.
RBN's current forecast (dashed blue
line) indicates that production will stay
flat for the foreseeable future, averaging

Gray Oak
Three Rivers
EPIC Crude
Cactus II
EPIC Crude
Gray Oak
Midland-to-ECHO III
Wink-to-Webster

Corpus Christi

only 4.21 MMbbl/d in 2021. It should
be noted that this outlook assumes a
slow, incremental increase in drilling
and completion activity going forward.
At today's pace of new well completions,
operators would find it very difficult to
maintain production at even August's
reduced level.
The pandemic's effects on Permian
production have resulted in a widening
gap between the volume of crude oil that
needs to be piped out of the basin and
the Permian's pipeline takeaway capacity.

FIGURE 1
Permian Oil Production and Refinery and Pipeline Takeaway Capacity
9.0

Actual

8.0

Forecast

7.0
Pipeline & Refinery
Takeaway Capacity

MMbbl/d

6.0

Nov. 2019 Forecast

5.0
4.0
3.0
2.0
1.0

64 THE AMERICAN OIL & GAS REPORTER

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Through the latter half of the 2010s, the
expectation that production would continue
rising spurred the expansion of several
existing pipelines, as well as the development of a number of new ones. In
Figure 1, the overlapping of the solid
blue line (historical production) and red
line (in-region refinery and takeaway
pipeline capacity) shows that from mid2017 through mid-2019, there was barely
enough capacity in place to deal with all
of the produced crude oil.
Reduced Price Differentials
As producers and shippers recall all
too well, the struggle to find pipeline
space for incremental production often
widened the price differential between
the hubs in Midland, Cushing and Houston.
But takeaway constraints eased considerably last August, when Plains All American's 670,000-bbl/d Cactus II pipeline
(green line in Figure 2) came on line and
EPIC Midstream started flowing up to
400,000 bbl/d of crude through its EPIC
NGL pipeline on an interim basis until
its 600,000 bbl/d EPIC Crude pipeline
(blue line) was finished in February 2020.
Both Cactus II and EPIC run from the
Permian to the Corpus Christi area, which
has become the Gulf Coast's leading
venue for crude exports. Corpus Christi
is also the terminus of the Phillips 66
and Enbridge 900,000 bbl/d Gray Oak
Pipeline (orange line), which further eased



American Oil and Gas Reporter - September 2020

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Contents
American Oil and Gas Reporter - September 2020 - Intro
American Oil and Gas Reporter - September 2020 - 1
American Oil and Gas Reporter - September 2020 - 2
American Oil and Gas Reporter - September 2020 - 3
American Oil and Gas Reporter - September 2020 - 4
American Oil and Gas Reporter - September 2020 - Contents
American Oil and Gas Reporter - September 2020 - 6
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