EIA: Permian system expansions keep pace with crude output growth

The US Energy Information Administration says recent pipeline additions and expansions should be sufficient to accommodate expected increases in Permian basin crude oil production. It also stated that the combination of new pipeline systems and the December 2015 lifting of export restrictions on US-produced crude will give Permian oil greater access to international markets through the Gulf Coast’s crude oil export infrastructure.

EIA cites the shrinking negative spread between the price of West Texas Intermediate crude oil at Midland, Tex., and its price at Cushing, Okla., as a sign that Permian takeaway capacity has become sufficient to meet producer demand for it.

Permian basin crude oil production increased to nearly 1.5 million b/d in January 2014 from 886,430 b/d in January 2010, according to EIA, resulting in the large price discounts at the crude oil gathering and transportation hub in Midland compared with Cushing, indicating that pipeline capacity was becoming constrained and crude oil was likely moving out of the region by more expensive methods, such as rail or truck.

The Midland vs. Cushing discount, which recently widened to more than $1/bbl, is unlikely to be either as large or as persistent as it was following the rapid increase in Permian production from 2010 to 2014, according to EIA. At points in both late 2012 and mid-2014, WTI-Midland was priced at least $15/bbl lower than WTI-Cushing. But pipeline capacity expansions and other market changes have helped moderate this discount.

Several pipelines that came online to accommodate rising Permian production in recent years—Magellan’s BridgeTex pipeline, Sunoco Logistics’ Permian Express pipeline, and Plains All American’s Cactus pipeline—are undergoing expansions set to come online later this year, adding about 340,000 b/d of capacity. Enterprise Product Partners also is building a Midland-to-Houston pipeline with a capacity of 450,000 b/d, expected to come online later this year.

EIA says other pipeline expansions are planned for gathering systems and intra-Permian pipeline infrastructure to bring increasing volumes of oil to the larger pipeline origin points like Midland. After 2017, several more new pipelines and expansions are planned, or are in the planning stages, that could carry additional increases in Permian production. Other pipeline project developments recently completed in the Gulf Coast will allow Permian crude oil to be sent to refining centers in Corpus Christi, Tex., Houston, St. James, La., and points in between.

RBN Energy LLC, however, suggests another major expansion of the Midland-Cushing discount could be in the works for as soon as late 2017 in response to production growth expected to add “at least another 1.5 million b/d” to the basin’s output by 2022. It sees the speed with which EPP’s newbuild project begins service as key to this equation, given a lack of certainty regarding whether the expansions underway will outstrip growth in crude supply or vice versa.