Five new oil pipelines are set to open in the Permian Basin through 2021, expanding a gap between production. The approach of Hurricane Dorian toward Florida also raised fears that offshore U.S. crude producers may slow output if the storm passes into the Gulf of Mexico. Limited natural gas pipeline takeaway capacity in the region has kept prices very low or negative in recent months.
It takeaway capacity that’s already spurring midstream rate cuts and could mean cutthroat competition ahead. Planned crude oil pipeline projects may result in a “moderate overbuild” of Permian Basin crude oil capacity. The United States is expected to add between 16 billion cubic feet per day (Bcf/d) and 17 Bcf/d of natural gas pipeline capacity in 2019.
Elisabeth Murphy, an analyst at ESAI Energy Llc says “The Permian is definitely slowing down”.
Plains All American reported strong earnings Tuesday for the third quarter of 2019 as growing demand for pipeline transport drove revenues higher. The pipeline will deliver non-potable, sustainable reclaimed water from the City of Lubbock. Producers in the West Texas and New Mexico oilfield are pumping about 4.72 million barrels a day, according to Rystad Energy AS.
U.S. natural gas futures for the winter of 2020-2021 gained the most of any contracts on last Thursday. Phillips 66 Partners LP set spot rates of $4.75 a barrel to ship crude on its new 900,000-barrel-per-day (bpd) Gray Oak crude pipeline within points in Texas. It compares with nearly 6 million barrels of pipeline capacity that could rise by about 3.5 million barrels in the next two years.
West Texas International (WTI) crude settled at $56.71 a barrel, up 93 cents. Most of those planned projects were announced when the Permian was posting annual growth rates in excess of 1 million barrels a day. GCX will provide much-needed additional natural gas take-away pipeline capacity in the Permian Basin. The midst of one of the largest crude infrastructure investment booms in US history.
some analysts see yearly growth slowing to as little as 650,000 barrels a day. The water will support the oil and gas industry in Texas and New Mexico with potential for additional industrial users. The older wells producing less and oil companies preparing to curb spending this year to boost investor returns. In June of 2019, the Lubbock City Council approved a letter of intent to sell to Palisade up to 6 million gallons per day.
Competition will heat up particularly among pipeline companies seeking to renew long-term shipper contracts that are set to expire. The track of the storm is kind of dangerous for Gulf of Mexico production. There is a chance that some of the projects would get canceled or consolidated and that would depend on shipper commitment. The latest Wood Mackenzie North America Crude Markets Service long-term outlook shows the main event.
The difference between the price of crude on the coast compared with Midland in the Permian has plummeted in the last year. The results fell short of prior-year earnings for the quarter, when Plains recognized its sale of an interest in BridgeTex Pipeline. It excited about the opportunity to preserve groundwater in the Permian Basin while providing a source of revenue to the City of Lubbock.
It making more difficult for shippers to make money after paying the pipeline fees. 134 active natural gas pipeline projects the EIA tracks, 46 have entered or are expected to enter service in 2019. Operators of legacy pipes in the oil patch already started cutting tariffs last year to retain or lure shippers to keep their systems fully loaded. In August.
The company also set rates at $4.75 a barrel to transport crude within Texas for committed shippers. The market had expected Permian Highway to enter service during the second half of 2020. Energy Transfer Partners LP cut rates for users on portions of their Permian Express system. Plains reported net income of $449 million on revenues of $7.9 billion for the three months ended Sept. 30, 2019.
Epic Pipeline Co LP halved its transportation rate prior to the line coming into service. Dorian is forecast to strengthen and become a highly dangerous Category 4 hurricane on last Sunday. The analysis indicates at least 300,000-500,000 bpd of crude takeaway capacity will be needed. Prices for winter gas futures rose about 3 cents to $2.73 per million British thermal units (mmBtu) in January 2021.
Oil producers are warning that they are preparing to curb spending this year to boost investor returns. The projects will increase deliveries by pipeline to Mexico or to LNG export facilities in the Gulf Coast region. The early 2020s will see a massive build-out in a short period of time. More than 40% of this new pipeline capacity 7.2 Bcf/d delivers natural gas to locations within the South Central region.
Declines from legacy wells are outstripping the new wells, and there aren’t enough rigs to offset the decline in the legacy wells. Cushing stocks have dropped by more than 300,000 barrels since the government report. The recent uptick in the Waha price clearly coincides with flows on the GCX. Third-quarter 2019 Transportation Segment adjusted earnings grew 19% over the same quarter of 2018.
John Auers, executive vice president says “New pipe start ups like Cactus II starting up and Epic in the summer have put us over the top on capacity”.
For pipes still at proposal stage, it doesn’t help that the spread between Midland. In the near-term we are positioned to grow our fee-based business in 2020. The compared with a 1.4-cent move for the November 2019 front-month. The front-month is usually the biggest market mover since it reacts to changes in the weather. Texas, and Houston has access to export markets.
It narrowed from over $10 a barrel a year ago to around $2.50. ONEOK’S Roadrunner Eastbound Expansion added about 1.0 Bcf/d of bidirectional capacity. This would mean transportation costs from the Permian bound for the Gulf would have to be even cheaper. The Permian is expected to be the engine of natural gas production growth once again next year.
Ultimately, only projects initiated by companies with well-established infrastructure will stand a chance to succeed. The drop came after two new pipelines opened in the Permian Basin this month. El Paso Natural Gas Pipeline’s 320 MMcf/d Northern Delaware Basin Expansion Project is still under construction. Connectivity on the existing systems would be plus points that will usher their projects through to completion.
The movement also supports industry reports that GCX is packing its lines in anticipation of entering service late next month. Still, some companies are forging ahead with pipeline expansions because of industry support. Company expect meaningful reductions in our growth capital program in 2021. Enterprise Products Partners LP plans to push ahead with adding nearly 1 million barrels a day.
Texas will ready in 2021, according to Tony Chovanec, senior vice president for fundamentals. The remainder of the natural gas pipeline projects slated for completion in the South Central region in 2019 will deliver natural gas. It’s no surprise to anyone that next year and probably for the next couple of years. The Texas East Transmission Company completed expansions to its existing pipeline infrastructure during the second quarter of 2019.
It’s going to be highly competitive, which will create volatility in earnings. The only pipeline project in the South Central region in 2019 that moves natural gas outside its region is the 2.6 Bcf/d Valley Crossing Pipeline. Plains and Magellan Midstream completed the $1.4 billion sale of a 50% stake in BridgeTex Pipeline. The Permian is the biggest U.S. production area for crude oil and the second biggest for gas.