Page 4 - NorthAmOil Week 36

NorthAmOil COMMENTARY NorthAmOil
Permian dynamics change as new takeaway capacity comes online
New oil pipelines out of the Permian are providing relief to producers in the region in an operating environment that remains difficult, while new gas capacity is also being prepared to come online
PERMIAN BASIN
WHAT:
Dynamics are changing in the Permian Basin.
WHY:
New pipeline capacity has provided relief to the oil glut, and a gas pipeline is about to enter service.
WHAT NEXT:
Crude bottlenecks will persist on the Gulf Coast in the shorter term.
THE Permian Basin – which continues to domi- nate US oil production growth overwhelmingly, as well as being one of the leading regions for natural gas growth – is experiencing changing dynamics as new pipeline capacity starts up.
Producers started to hit the brakes on drilling in the basin last year, as takeaway capacity strug- gled to keep up with output, while new pipeline projects were some time away from start-up. Now, though, some of these projects are finally online, with more set to follow, granting some relief to Permian drillers as operating conditions remain challenging.
Moving oil out
Two major new oil pipelines – Plains All Amer- ican Pipeline’s Cactus II and EPIC Midstream’s crude pipelines – came online in August in the first major takeaway capacity boost for the Per- mian since the start of this year. Permian output has continued to grow during this time, rising to 4.35mn barrels per day in August from 3.91mn bpd in January, according to official US figures. The new pipelines are now resulting in grow- ing volumes of crude heading for the US Gulf Coast from the basin, which spans Texas and New Mexico. But the additional capacity is also putting additional pressure on crude export and storage infrastructure on the coast, and now it appears that the next race will be to build new export terminals in the region.
Consultancy RBN Energy said that US crude oil loadings onto vessels at the Texas port of Corpus Christi hit an average of 1mn bpd at the end of August after the two new pipelines entered service. This compares with an average of 525,000 bpd in July.
Cactus II has a capacity of 670,000 bpd, while EPIC is shipping up to 400,000 bpd on a natural gas liquids (NGLs) pipeline that has been tempo- rarily converted to crude service. The company is building a permanent crude pipeline with an initial capacity of 600,000 bpd, which is due to enter service in the first quarter of 2020.
EPIC is also among those companies build- ing new coastal crude export infrastructure. The
company’s first crude export dock will come online by the end of this year, and will be capa- ble of loading Aframax-sized vessels, which can carry 500,000-800,000 barrels of oil. A second dock is under construction and is due to enter service in the second quarter of 2020. EPIC will have the ability to load Suezmax vessels – which can carry between 800,000 and 1mn barrels of oil – from its waterborne terminal once the second dock is operational.
The surge in crude exports out of Corpus Christi has also been spurred by pipeline oper- ators cutting tariff rates for shipping oil through their pipelines to the Gulf Coast. As well as encouraging flows to the coast, this has helped narrow the differential between crude traded at Midland, in the Permian Basin, and US benchmarks.
Meanwhile, market intelligence firm Gen-
scape reported that crude inventories in Cor-
pus Christi had risen by almost 1mn barrels to
12.7mn barrels in the week up to August 23, with
storage utilisation reaching 52%. At the same
time, the firm found that crude inventories in
West Texas had fallen by 2mn barrels in the final While the new week of August, to 21.3mn barrels at monitored
facilities.
Progress for gas
While the new oil pipelines are helping to allevi-
ate Permian crude bottlenecks, the region is still
struggling with a glut of natural gas. The surge in Permian crude Permian gas volumes is made more challenging
by the fact that gas is a by-product of drilling for
oil in the basin and infrastructure for handling
it has often been treated as an afterthought by
those making plans for crude.
However, pipeline operators are also stepping
up efforts to develop gas takeaway capacity, and a glut of natural
Gulf Coast Express pipeline is now preparing to enter service. Deliveries into the pipeline began on August 8, and operator Kinder Morgan has said that the project remains on schedule for a full in-service date of October 2019. The $1.75bn pipeline will be capable of carrying up to 2bn cubic feet (57mn cubic metres) of gas out of the
gas.
oil pipelines are helping to alleviate
bottlenecks, the region is still struggling with
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w w w . N E W S B A S E . c o m Week 36 10•September•2019