Pipelines center stage in Permian oil boom
Bottlenecks force production cuts, increased flaring
HOUSTON — Pipelines have traditionally operated as the dull middle man of the energy sector, a business so boring that the hard-charging Enron dumped its pipeline holdings to chase sexier businesses during its rapid, but short-lived rise.
The Houston Chronicle reports today, however, the once sleepy industry is where the action is, attracting billions of dollars in investment, launching new companies and spurring a wave of mergers, acquisitions and sales.
Nowhere is the action more intense than in Texas, where companies of all sizes are planning to spend more than $40 billion to build or expand almost 10,000 miles of pipelines to connect booming oil production in the Permian Basin primarily to refining and export markets along the Gulf Coast.
The players include the world’s largest energy companies, such as Exxon Mobil of Irving, major Houston pipeline companies like Kinder Morgan and Plains All American, refiners such as Phillips 66 of Houston and a growing list of startups backed by private equity investors. Over the past few years, analysts count dozens of new pipeline companies entering the market and more than 20 multibilliondollar projects potentially getting underway.
“They seem to be announcing new pipelines every day,” said Sandy Fielden, director of oil and products research at Morningstar, the Chicago investment research firm.
Texas is at the center of the action, aided by its friendly regulatory climate as well as its vast energy resources. Texas accounts for about 40 percent of the nation’s record oil production. Most of that is coming from the Permian, which stretches in New Mexico.
“We’re feverishly trying to
address the needs of the Permian Basin,” said Jeff Welch, president of NAmerico Energy, a pipeline startup based in The Woodlands. “These pipeline projects can’t come soon enough.”
Because production has outpaced pipeline capacity, many companies have had to leave oil in the ground and burn off natural gas in a practice known as flaring.
Natural gas is mostly methane, a potent greenhouse gas that contributes to global warming. The Permian is approaching 400 million cubic feet of gas flared daily, which is more than $1 million of natural gas a day, analysts said.
“With the climate crisis, what’s happening out there is unimaginable,” said Sharon Wilson, a Texas organizer for the environmental advocacy group Earthworks. Wilson said the answer isn’t building more pipelines, but rather finding cleaner energy sources and reducing the use of fossil fuels.
Energy companies and analysts have a different solution — more pipelines — but agree that flaring is a problem. Some companies are reducing oil production in Texas because they’re on the verge of surpassing the amounts of natural gas they’re legally permitted to flare in the state, said Sunil Sibal, an energy analyst with Seaport Global Securities in New York.