Permian pipeline operators will face fiercer competition as ten new oil pipelines are set to start up this year and next. Producers in the Permian Basin pump about 4.72 million barrels of crude every day, a private research company said, compared to nearly 6 million bpd oil pipeline capacity which could expand by 3.5 million bpd in the next two years.
The new pipeline projects include Enterprises’ Midland-to-ECHO 3 and Midland-to-ECHO 4 with each capacity of 450 bpd, EPIC Midstream’s 600-bpd EPIC, Jupiter’s 1,000-bpd Jupiter Pipeline, ExxonMobil’s 1,000-bpd Wink to Webster project, Tallgrass Energy’s 800-bpd Seahorse project, Crimson Midstream’s 600-bpd Swordfish project, Phillips 66’s 400-bpd Red Oak Pipeline, Magellan-Navigator’s 250-bpd Voyager project, and Plains-Delek’s 85 bpd Red River Pipeline.
Most of those planned projects were announced when Permian production grew 1 million bpd annually. However, the current annual growth is expected at just 600,000 bpd. The slowing growth in the Permian Basin is a result of producer cutting spending to boost return and old wells producing less oil.
Pipeline operators will have to meet fierce competition when seeking to renew long-term shipper contracts that will expire soon. In addition, the gap between crude prices in Midland, Texas, and Houston has dwindled from more than $10/barrel a year ago to around $2.50/barrel, straining profit margins for operators of existing pipes as they are forced to cut tariffs.
The shrinking spread of crude prices in Midland and the coast does not also help pipes that are still at the proposal stage. Sandy Fielden from Morningstar Inc, in a report by Bloomberg, expected cancellation or consolidation of some projects.
However, some operators are moving forward with their expansion drive due to support from the industry. Enterprise Products Partners LP plans to forge ahead with two projects that will connect the oil-producing area in Midland to the company’s ECHO terminal in southeast Texas. These projects are expected to be ready in the first half of 2021.
