Come Gather ‘Round Pipelines – Building Out Permian Crude Gathering Systems Part 2

Permian Basin crude producers are currently churning out over 1.5 MMb/d of crude from a basin that has produced oil since the 1920’s but is the center of a recent renaissance. With new production comes new demand for takeaway capacity and between January 2013 and the end of 2015, about 1 million barrels of new pipeline has been constructed or will come online directed towards Houston, Nederland and Corpus Christi, TX. About a dozen new gathering systems are being constructed to help get new production from the wellhead to the larger takeaway pipelines. Today we continue our series on new Permian gathering infrastructure.

In Episode 1 we reviewed the current crude price situation and takeaway capacity balance in the booming Permian Basin. At the moment, production exceeds local demand and takeaway capacity so that producers are experiencing price discounts at Midland, TX for West Texas Intermediate (WTI) crude versus the Cushing, OK trading hub of around $8.60/Bbl. The spread between Midland WTI and the Gulf Coast benchmark light sweet crude Light Louisiana Sweet (LLS) is about $10.75/Bbl. As soon as the new 300 Mb/d BridgeTex pipeline – a joint venture between Magellan Midstream and Occidental – comes online in June we can expect the Midland/LLS spread to narrow. In the meantime, the price spreads are still too low to justify more expensive rail transport out of the Permian. In this episode we provide an overview of the mainline pipelines out of the Permian and the current centers of production activity and then start our survey of gathering systems with a new lateral addition to Occidental’s Centurion pipeline.

We begin with a big picture map to provide perspective on the mainline pipelines out of the Permian Basin region (see Figure 1). On the map, the solid lines represent pipelines already up and running, dotted lines are being built. We ran through these pipelines and their capacities in our analysis of the takeaway stack in the previous episode. The map is not to scale – just a representation of the routes of the pipelines. The lighter area is the Permian Basin region. The main origination points for pipelines out of the Permian are Crane (Longhorn Pipeline), McCamey (Cactus Pipeline), Colorado City (West Texas Gulf, BridgeTex, and Permian Express Phase 2 as well as a connection to Centurion), Pecos, NM (Centurion) and Jal, NM (Basin). The pipeline gathering system developments described here will principally deliver crude to Crane, Midland, Colorado City and McCamey. Later in the series we’ll cover gathering systems being developed by Western Refining and Holly Frontier, designed to deliver Permian crude to the Western refinery at El Paso and the Navajo refinery in Artesia, NM.