Permian Pipeline Projects Look to Bypass Looming Bottleneck

Tuesday, April 17th, 2018 and is filed under New Mexico Oil and Gas Investing, Oil and Gas Current Events, Permian Basin Oil News, Texas Oil and Gas Investing

Pipeline WelderThe Permian Basin is likely to become even more of a hotbed of oil and gas activity in 2018 with a surge in output projected “to push total U.S. liquids production to a new all-time high.” With the projected increase in production, many producers are seeking new solutions for moving crude, and moving it faster and cheaper. The possibility of a looming bottleneck is leading the industry to put more consideration into just how much pipeline capacity can be added in the Basin––with capacity questions becoming increasingly more relevant starting in 2019.

Demand Drives Pipeline Development

As is so often the case with oilfield opportunities, several players have stepped up to help answer increased customer demand, preemptively heading off any potential bottleneck in the Permian at the pass.

The Permian, which is nearing its 100th year of oil production, ranks as the world’s second-most-prolific oil field, trailing only the Ghawar field in Saudi Arabia. Today, the Permian pumps a record 2.8 million b/d a day with no sign of letting up. In fact, many producers have recently announced that they are upping their game. Exxon plans to triple its Permian production over the next seven years. ATX Energy Partners, Chisolm Energy Holdings, and Ridge Runner Resources are just a few other companies that have announced plans in the basin.

All this oil and gas must be taken to market as efficiently as possible––especially as U.S. exports of both crude oil and natural gas continue to rise. And the hotspot hydrocarbon destination out of the Permian to markets worldwide is Corpus Christi.

Connecting to World-Wide Markets via Corpus Christi

Pipeline WelderCurrently, the Cactus Pipeline, owned by Plains All American, is the only major pipeline connecting the Permian Basin to Corpus Christi. While Plains All American is working to expand the crude oil capacity of Cactus, the company is also slated to build another pipeline, the Cactus II, to help meet even more demand. Originating west of Odessa and traveling southeast to McCamey, Texas, the Cactus II is planned to connect with a larger pipeline to finish out the journey to Corpus Christi and the nearby port city of Ingleside.

Other companies are now looking to join Plains All American with pipelines stretching from the Permian to the Port of Corpus Christi. If completed, these new projects will add considerable takeaway capacity to the region.

New Pipeline Projects in the Permian

Kinder Morgan’s Gulf Coast Express Pipeline Project is designed to transport up to 1.92 billion cubic feet per day of natural gas out of the basin. The pipeline is set to originate just outside of Coyanosa, Texas and extend approximately 447 miles southeast to Agua Dulce, just west of Corpus Christi. Kinder Morgan hopes to have the GCX Project completed by October of 2019.

The 730-mile EPIC pipeline will add another 590,000 barrels per day of take-away capacity with terminals slated to be built in Orla, Pecos, Crane, Wink, Midland, Helena, and Gardendale, offering convenient connectivity to Corpus Christi. EPIC CEO Phillip Mezey hopes to have the project completed and in service sometime in 2019.

In April 2017, Enterprise Products Partners L.P. announced plans to construct a 571-mile NGL pipeline from the Permian to their fractionation and storage complex in Mont Belvieu, Texas. Enterprise dubbed the project, the Shin Oak pipeline. The Shin Oak, which is currently under construction, is expected to be in service in the second quarter of 2019.

In December 2017, Enterprise Products Partners L.P. announced it would convert one of its existing NGL pipelines, which stretches from the Permian Basin to the Gulf Coast, to crude oil service. Evaluation is underway as to which pipeline, the Seminole Blue, Seminole Red, or the Chaparral, is to be converted to transport crude oil.

The BridgeTex pipeline from Midland to Houston recently expanded its crude oil capacity from 300,000 bpd to 400,000 bpd. Now BridgeTex Pipeline Co LLC has plans to increase the capacity once again to 440,000 bpd. The new expansion is slated to be operational in early 2019.

Magellan Midstream Partners, LP has plans to construct a pipeline to originate in Crane, Texas which will extend 375 miles southeast to Three Rivers where the pipeline will split in two directions. Shippers will then have the option to deliver via a new pipeline 70 miles southeast to Corpus Christi, or they can opt to make Houston their destination via a new 200-mile pipeline.

Why now is the time to invest in oil...

The Takeaway from Increased Takeaway

The oil and gas industry is one of the best in the business at responding to opportunity––and there’s no bigger opportunity boon than the Permian Basin. Despite a persistently stubborn down-cycle in oil prices, 800,000 b/d of new production were added in the region from June 2014 to June 2017. If projections hold true, this number will be dwarfed by with another 2.3 million b/d added to the Permian’s output by 2022, bringing daily production up to 3.467 million b/d.

As Permian Basin production continues to defy expectations––and export opportunities out of the Texas Gulf continue to open––pipeline capacity will continue to be a hot topic over the next few years. As it stands today, there’s roughly only 300,000 b/d of excess pipeline capacity. While over-build is certainly a concern, the pipeline projects discussed above, if all completed, would deliver annual capacity of over 3 million b/d by 2020, a decent ramp-up to handle the potential flood of new oil out of the Permian.