Come Together - How Disparate Permian Crude Quality Impacts New Pipeline and Export Infrastructure

To say that Permian crude oil quality varies is an understatement at best. In fact, there’s as much variety in the crude coming out of West Texas as there is in the arsenal of a major league pitching ace. Handling those varied crude qualities is the challenge of midstream operators, who, like batters facing down a Randy Johnson or Pedro Martinez in their prime, need to do the best they can with what they’re given. With the start of spring training only a month away, we begin a series detailing the current mix of Permian crude oil qualities, how pipelines are handling them, and what it means for exports, the end destination for much of today’s incremental Permian oil production. Today, we discuss Permian crude quality variations and the steps new pipelines are taking to deal with it.

As usual, we start this blog with a quick recap of our recent work on the Permian. We were just in this space discussing Permian crude oil, as well as natural gas, markets in Thinking Out Loud, where we looked at how the new pipelines that came online in 2019 factored into our 2020 outlook. The Permian was also a big topic among RBN’s blog readers last year, as three of our five most popular blogs were Permian-focused and our #1 blog, Hard Hat and a Hammer, also had a Permian slant. One subject matter we only touched on occasionally last year was Permian crude oil quality. We’ll make up for that now, with this series.

Figuring out Permian crude oil quality is kind of like trying to decipher what the next pitch may be in a Major League Baseball game. While you know you’re getting oil, the characteristics of that oil can vary widely from one part of the basin to the next. The most important aspect of crude quality is its “API gravity,” or just API for short. API stands for American Petroleum Institute, and the gravity measurement indicates a crude oil’s density relative to water, with higher numbers representing “lighter” oil types with lower densities. Conversely, low API numbers indicate denser, or “heavier” crude varieties. Figure 1 maps out the Permian’s oil wells and colors them according to API. The crude oil most commonly associated with the Permian is West Texas Intermediate (WTI), which is typically defined as a crude with an API between 38 and 44 degrees (light blue dots in Figure 1) and concentrated in the Midland and southern Delaware basins.

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