Permian to face pipeline shortage
Pipeline constraints out of West Texas will slow oil and gas production growth in the Permian Basin oil field for at least another next year, according to new report.
The report, by bond rating firm Moody’s Investment Services, forecasts that pipeline shortages will persist into late 2019, when the first of several new pipelines is expected to go into operation. Three of the biggest projects are expected to be completed by early 2020 to move oil from the region to Gulf Coast markets.
Production in the West Texas shale play has reached 3.4 million barrels a day, bumping up against the pipeline capacity out of the region. Crude oil production in the Permian is expected to grow another 31,000 barrels a day this month, according to the Department of Energy, further straining pipelines.
The lack of available pipeline capacity out of the Permian Basin — which Moody’s estimates to be fewer than 4 million barrels of crude a day — has widened the discount of oil sold in Midland compared to other markets be-
The lack of available pipeline capacity out of the Permian Basin has increased the discount of oil sold in Midland.
cause of uncertainty over the ability to deliver. Oil in Midland is selling for $14 a barrel less that in the storage and pipeline hub in Cushing, Okla., and $23 a barrel less than along the Gulf Coast, according to Moody’s.
As result, the growth of the Permian’s output is slowing. The analysis doesn’t expect oil production in the Permian to break the 4 million barrel a day mark until the third quarter of 2019.
The analysis says some companies, such as Pioneer Natural Resources of Irving and Concho Resources and Diamondback Energy, both of Midland, have contracted pipeline space for most of their oil production growth through 2019. But smaller operations have more limited transportation options that may leave them vulnerable to the pipeline shortage and buyers demanding steep discounts, according to Moody’s.
One pipeline company, EPIC Midstream of San Antonio, has said it will temporarily convert a natural gas liquids pipeline from the Permian to the Corpus Christi region to oil when it comes online in the third quarter of 2019. That pipeline will revert back to carrying natural gas liquids when EPIC completes a crude in early 2020.
The pipeline capacity shortfall is expected to ease significantly by the fourth quarter of 2019, and pipeline capacity out of the Permian Basin is expected to grow to around 8 million barrels a day by the third quarter of 2020 — plenty to accommodate future production, which could grow by 1 million barrels a day each year, according to Moody’s.
Similar pipeline constraints are affecting natural gas and natural gas liquids, though Moody’s said natural gas constraints are less of an issue for exploration and production companies.