As oil pipelines come online in the Permian basin, will the bottleneck depressing wellhead prices just move to Gulf Coast export terminals? No, according to a Mar. 29 research note from Cowen Equity Research.
Last year, the price of West Texas Intermediate crude at Midland, Tex., sagged well below that of WTI at Cushing, Okla. But the discount has disappeared, the US Energy Information Administration reported on Mar. 26.
EIA cited recent additions to Permian takeaway capacity totaling 320,000 b/d.
WTI-Midland still sells at a discount to the Magellan East Houston marker, but the spread has narrowed to $7/bbl.
Congestion relief thus moves toward the Gulf Coast, awaiting incremental pipeline capacity downstream of Cushing.
Then the question becomes export capacity.
In their Mar. 29 note, Cowen analysts Jason Gabelman, Ben Varga, and Dilya Safine say the US has shipped as much as 3.5 million b/d of crude from the Gulf Coast for 1 week. Over the last 4 weeks, shipments have averaged 3.1 million b/d.
At least 2.1 million b/d of Permian pipeline capacity will start between now and yearend 2020, the analysts say, allowing incremental new production and an additional 1 million b/d in 2021.
Because US refiners are near their collective ability to run light crude, they say, “that production will need to be exported.”
The analysts modeled Gulf Coast export capacity port by port, incorporating construction plans and Clipperdata shipment records.
“We estimate there is about 1 million b/d of available USGC shipping capacity presently, which should grow to 1.5 million b/d by yearend 2019,” they say. “That compares to an estimated 700,000 b/d demand for that capacity by yearend 2019 and 900,000 b/d by mid-2020 ahead of new export facilities starting up.”
While the analysts expect no export bottleneck, they say “there could be growing pains along the way.”
Not long ago, no one worried about US capacity to export crude. That analysts must do so now reflects national interests served by an oil production renaissance.
(From the subscription area of www.ogj.com, posted Mar. 29, 2019. To comment, join the Commentary channel at www.ogj.com/oilandgascommunity.)
