PBIOS - October 2018 - 131

Projects Add New Take-Away Capacity
By Sandy Fielden

Relief is on the way in the shape of
more than 4 MMbbl/d of new pipeline
capacity, but it will not start coming on
line until the third quarter of 2019. In the
meantime, the discounts that producers
without pipeline capacity have to swallow
have ballooned to $20 a barrel at times.
Transportation alternatives are thin on
the ground with limited crude-by-rail infrastructure available and a severe shortage
of tank truck drivers in the region.
As production has surged since 2011
both in the Permian and the rest of the
country, another developing challenge
has been finding markets for the new
crude bounty. That is because most U.S.
refineries-especially along the Gulf Coast-
are designed to process heavy oil rather
than the light, sweet grades typically produced in shale plays. The quality mismatch
was particularly problematic before Congress removed federal restrictions on U.S
oil exports in December 2015, allowing
shippers to begin looking outside North
America to find buyers for new production.
Developing those buyers as well as adequate port infrastructure to deliver crude

HOUSTON-Even after nearly a century of oil and gas development, the Permian Basin remains the nation's most
prolific oil-producing region. In 2007
Permian average output of 850,000 barrels
a day represented 17 percent of the 5.1
million bbl/d in total U.S. crude production. With horizontal stacked tight oil
plays emerging across the basin, Permian
oil output has nearly tripled since 2007,
and now accounts for more than 30
percent of the nation's total production,
according to U.S. Energy Information
Administration statistics.
With the Permian drilling, completion
and production activity in full swing the
past few years, an old challenge has
arisen to hinder Permian output: a lack
of take-away capacity to transport oil out
of West Texas. Extensive infrastructure
built out since 2015 has failed to match
booming crude production, leading to
deep West Texas Intermediate price discounting in the Midland gathering and
trading hub this year.

overseas in supertankers are at the top of
the "to-do list" for Permian producers
and midstream players.
Today's transportation challenges out
of West Texas are compounded by a parallel issue with natural gas and natural
gas liquids produced as byproducts of
crude. These also need to get to market
and there is a looming shortage of pipeline
capacity later this year and next. As with
oil, there is new pipeline capacity on the
way, but delays bringing on anticipated
demand in Mexico and at Gulf Coast liquefaction export terminals could push
gas prices underwater at the West Texas
Waha hub.
Long-Haul Pipelines
Before the tight oil play boom, three
long-haul pipelines carried Permian crude
from Midland to Midwest refineries: the
100,000 bbl/d Occidental Centurion, the
450,000 bbl/d Plains All American Basin,
and the 300,000 Energy Transfer West
Texas Gulf pipelines. By 2012, booming
shale production in North Dakota and
the Rockies saturated the Midwest refining

FIGURE 1
Permian Crude Capacity Stack
9,000

8,000
Jupiter

Grey Oak P66 Enbridge

7,000

Cactus 2

Enterprise NGL Conversion

6,000

Magellan ETP JV

5,000

#REF!

4,000

EPIC

3,000

PELA

2,000

Bridgetex

1,000

Existing Pipeline (Basin, Centurion, WTG, Amdel, Longhorn)

Plains Sunrise Expansion (Phases 2 & 3)
Midland Sealy
Cactus

Permian Express II, III & IV
Refinery Consumption
Production Forecast

20
3Q

20
1Q

20
3Q

19
20
1Q

18
20

20
3Q

17
1Q

20
3Q

20
1Q

20
3Q

20
1Q

15
20

20
3Q

14
1Q

20
3Q

Source: Company Reports, Morningstar

OCTOBER PBIOS 2018 131

PBIOS - October 2018

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