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“New pipeline infrastructure should accommodate expected rise in Permian oil production” says EIA

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World Pipelines,

As highlighted by the US Energy Information Administration (EIA), the Permian Basin has seen an increase in crude oil production. This increase has been accompanied by a concurrent rise in pipeline infrastructure so that the crude oil can be delivered to locations with high demand, such as the Gulf Coast.

A negative spread between the price of West Texas Intermediate (WTI) crude oil at Midland (Texas) with the price of WTI at Cushing (Oklahoma) indicates a potential shortfall in available takeaway capacity. The the Midland versus Cushing discount recently widened to more than US$1/bbl.

At points in both late 2012 and mid 2014, WTI-Midland was priced at least US$15/bbl lower than WTI-Cushing. Pipeline capacity expansions and other market changes are now underway to deliver more Permian crude oil to demand centres.

Crude oil production in the Permian grew from 886 430 bpd in January 2010 to nearly 1.5 million bpd in January 2014, and this production level was more than could be accommodated by in-region refining and pipeline capacity. This situation resulted in large price discounts at the crude oil gathering and transportation hub in Midland, compared with Cushing. This indicated 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.

In 2014, WTI-Midland averaged a US$6.94/bbl discount to WTI-Cushing, compared with a US$1.68/bbl average discount during 2013. However, as new and expanded pipeline capacity was added, WTI-Midland’s discount to WTI-Cushing narrowed, falling to an average of US$0.18/bbl in 2015 and US$0.07/bbl in 2016.

Due to early 2016’s rise in oil prices, the EIA’s April Short Term Energy Outlook expects crude oil production in the Permian to accelerate. The EIA’s April Drilling Productivity Report (DPR) indicates a total of 310 oil directed rigs active in the Permian, 158 more than at the same time last year. The DPR also estimates crude oil production in the Permian at 2.3 million bpd as of April 2017, which is almost 300 000 bpd higher than April 2016.

With several pipelines coming online to accommodate rising Permian production, including Magellan’s BridgeTex pipeline, Sunoco Logistics’ Permian Express pipeline, and Plains All American’s Cactus pipeline, pipeline infrastructure in the Permian region is now better equipped to handle new production than it was in 2014. These pipelines are also undergoing expansions, which are expected to add approximately 340 000 bpd of capacity.

Alongside these pipeline expansion projects, Enterprise Product Partners is building a Midland to Houston pipeline with a capacity of 450 000 bpd, which is expected to come online later this year. After 2017, several other new pipelines and expansions are planned, or are in the planning stages, to accommodate additional Permian oil production increases.

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