Crude oil production in Western Canada and the Bakken is ratcheting up — in the Niobrara too — but pipeline takeaway capacity to key markets south of there is an issue. For a couple of years now, egress out of Alberta has been problematic, due in large part to delays in the development of the Enbridge Line 3 replacement, the Trans Mountain Expansion (TMX) and Keystone XL. Things got so bad last winter that Alberta’s provincial government ordered production cutbacks, though they are now easing. Rising Bakken production is quickly filling any remaining space on the Dakota Access Pipeline, and pipes out of the Niobrara’s Powder River and Denver-Julesburg (D-J) basins are approaching their capacities as well. In response, midstream companies have proposed a number of fixes, some very incremental in nature and others big and impactful. As typically happens, though, too much capacity may be on the drawing board. Today, we consider the ongoing competition to build new capacity down the eastern side of the Rockies.
Daily Energy Blog
Acquire, expand, and acquire again. That’s proven to be a successful strategy for a number of midstream companies providing crude oil and natural gas gathering services in the Permian Basin. In the past couple of years, the hydrocarbons-packed shale play in West Texas and southeastern New Mexico has been experiencing major gathering-system buildouts and Pac-Man-like acquisitions that aggregate small and midsize systems into regional behemoths. A case in point is EagleClaw Midstream, which has used the acquire-and-expand approach to great effect, most recently with the concurrent acquisition of Caprock Midstream Holdings and Pinnacle Midstream — two deals that, by the way, gave previously gas-focused EagleClaw a strong foothold in Permian crude gathering. Today, we discuss EagleClaw and its holdings in the Permian’s Delaware Basin.
The battle over the future of Enbridge’s Line 5 light crude oil pipeline through Michigan is heating up. In recent weeks, Michigan’s new attorney general filed suit to throw out the 1953 easement the state granted to allow the pipeline to be laid under the Straits of Mackinac — the narrow waterway between Michigan’s upper and lower peninsulas — and to block implementation of an agreement Enbridge and the state’s then-governor reached last fall to replace the section of Line 5 under the straits by the mid-2020s. Enbridge is pressing ahead, maintaining that the existing pipeline is safe and the 2018 agreement is legal and fully enforceable. All that raises two questions: just how important is Line 5 to the Michigan and Eastern Canadian refineries, and what would those refineries do if the pipeline were to cease operations? Today, we discuss recent developments and examine the issues at hand.
The next wave of Permian crude oil pipeline infrastructure is getting completed as we speak. In West Texas, several new pipeline projects are either finalizing their commercial terms and agreements, wrapping up the permitting process, or actually putting steel in the ground. In the Permian alone, there is a potential for 4.3 MMb/d of new pipeline takeaway capacity to get built in the next two and a half years. Along with those major long-haul pipelines, there are also crude gathering systems being developed to help move production from the wellhead to an intermediary point along one of the big new takeaway pipes. While we often like to give pipeline projects concrete timelines with hard-and-fast online dates, the actual logistics of how producers, traders and midstream companies all bring a pipeline from linefill to full commercial service are never clean and simple. There can be a lot of headaches, learning curves, and expensive — not to mention time-consuming — problem-solving exercises that come with the start-up process. In today’s blog, we discuss why new pipelines often experience growing pains, and how market participants navigate the early days of new systems.
With Permian crude oil production now topping 4 MMb/d — and likely to surpass 5 MMb/d in short order — producers in the play are working closely with midstream companies to help ensure there is sufficient capacity in place to efficiently transport their crude from the lease to larger shuttle systems, regional hubs and takeaway pipelines. Sometimes, gathering systems need to be built from scratch, but in most cases, it is more cost-effective to expand existing systems that are already connected to key infrastructure downstream. Today, we continue our series with a look at a big pipeline network that NuStar Energy acquired two-plus years ago and has been expanding and improving ever since.
The competition to develop the one or possibly two new offshore crude oil export terminals that the U.S. will likely need by the mid-2020s has been under way for more than a year now, and the field of contestants continues to expand. Within the past few weeks, both Phillips 66 and Sentinel Midstream filed applications with the U.S. Maritime Administration (MARAD) — Phillips 66’s project would be located off the coast of Corpus Christi and Sentinel’s in the waters off Freeport. And who knows, maybe another deepwater project or two capable of fully loading Very Large Crude Carriers (VLCCs) might still be in the offing. Today, we update our series on prospective offshore crude export terminals with a look at the P66 and Sentinel project details revealed by their applications to MARAD.
Enbridge’s long-running effort to revamp how it allocates space — and charges for service — on its 2.9-MMb/d Mainline crude oil pipeline system is about to enter a new and important phase. On July 15, the Calgary, AB-based midstream giant plans to initiate an open season for shippers interested in locking up long-term capacity on the Mainline, which serves as the primary conduit for heavy and light crude from Western Canada to U.S. crude hubs and refineries. If all goes well, shippers will know by late in the year how much space they will have on the system starting in mid-2021, assuming Enbridge’s plan is approved by regulators. This is a huge change. The Mainline isn’t just the largest crude pipeline system out of Western Canada, it’s also the only major line whose service is currently 100% “uncommitted” — that is, the Mainline has no capacity under long-term contracts with shippers. Today, we discuss the latest on the midstreamer’s Mainline tolling plan.
For more than six months now, the provincial government of energy-rich Alberta has been trying to mitigate the sometimes painful effects of having too little pipeline capacity to move crude oil to market. They’ve mandated production cuts by larger producers, contracted for crude-by-rail (CBR) services — then moved to undo those deals — and pressed the Canadian government to help advance long-delayed pipeline projects. Things appear to have reached a semi-happy medium for now: the price spread between Western Canadian Select (WCS) and West Texas Intermediate (WTI) has narrowed, but remains wide enough to justify sending crude out by train. Still, it’s clear that the big tranches of new pipeline capacity many had hoped would be built or at least under construction by now face more hurdles. How long will Alberta producers need to wait for unfettered pipeline access to the U.S. Midwest and Gulf Coast and to Canada’s West Coast? Today, we provide an update on WCS pricing, Alberta crude-by-rail, and the key pipeline projects that never seem to get finished.
A key to success for midstream companies developing crude oil gathering systems in the Permian is establishing strong, trusting relationships with the producers driving the region’s growth. Hitch your wagon to one or more producers with top-notch rock and aggressive expansion plans, develop gathering systems that meet their needs for flow assurance and destination optionality, and life will be good. Many of the midstreamers whose Permian gathering systems we’ve been discussing in our ongoing series have done just that. Today, we review the existing and planned systems of EnLink Midstream, another company whose growth is founded in large part on the relationships it has developed with major Permian producers.
Crude oil exports out of the U.S. are the topic du jour these days. At the heart of the discussion are the who, what, where and when of how the export capacity will be developed. Who is going to build the next crude oil export terminal, what type will it be (offshore or onshore), where are they going to put it (Corpus, Houston, Louisiana — the list goes on), and when will that new capacity be available? Everyone seems to have a different answer, and for good reason. Crude oil export terminals aren’t easy to develop, any way you look at them. Today, we examine the financial and logistical hurdles that export terminals must clear in order to reach a final investment decision, and what those obstacles mean for what kind of terminal gets built, where it gets built, who builds it and how soon.
Most crude oil gathering systems in the Permian — and elsewhere — have a relatively simple aim: to reliably and efficiently deliver crude from the lease to larger pipelines downstream that provide their shippers a high degree of destination optionality — end of story. A select few systems, though, have evolved into key elements of their owners’ larger value chain. With these, crude flows through gathering systems and takeaway pipes to export terminals — maybe even refineries — all held by the same company or its affiliates. By integrating assets from the site of crude production to the refinery or export dock, such owners add value each step of the way. Today, we continue our series with a look at Marathon Petroleum/Andeavor Logistics’ Permian crude gathering system, which started out relatively small and isolated but has evolved into something much bigger and better connected.
A few months back, we discussed the quandary that crude oil shippers face when deciding whether to commit to proposed new pipeline capacity out of the Bakken and the Niobrara, and from the Cushing, OK, hub to the Gulf Coast. The dilemma boils down to this: more capacity is needed, based on current constraints or projected growth (or both), but there’s some reluctance among shippers to make long-term commitments. Their worries are that production gains might slow and too much takeaway capacity might be built, resulting in bidding wars for barrels at the lease to fill shipper commitments. Well, in recent weeks there’s been a bit of a break in the project logjam; among other things, P66 and its partners have decided to proceed with the construction of both the Liberty Pipeline, from the Bakken and Niobrara to Cushing, and the Red Oak Pipeline, from Cushing to Houston and Corpus Christi via Wichita Falls, TX. And that’s not all. Today, we provide an update on efforts to develop new pipeline capacity from North Dakota and the Rockies to Oklahoma and beyond.
For evidence of America’s unwavering entrepreneurial spirit, look no further than smaller midstream companies that develop crude oil gathering systems in the Permian. These midstreamers — many of them backed by private equity — scramble to identify production areas on the cusp of needing gathering lines, propose systems to serve them, convince producers to dedicate acreage, then lay pipe, install tankage and get things up and running. All of this occurs in an atmosphere of intense competition. A number of new and growing crude gathering systems are under development today in southeastern New Mexico, an area that has experienced more than its share of production growth in the past couple of years. Today, we continue our series with a look at 3 Bear Energy’s Hat Mesa Oil Gathering System in the northern Delaware Basin, which was developed from scratch in Lea County and now serves 10 producers there.
Crude oil production in the U.S. continues to rise — it currently stands at 12.4 MMb/d, up more than 1.6 MMb/d from 12 months ago, according to the most recent data from the Energy Information Administration (EIA). New pipeline projects from Cushing and West Texas to the Gulf Coast are being developed to ensure there is enough flow capacity to move all those barrels from the wellhead to refineries and export docks. Which leads to two critical questions — namely, how much actual crude oil export capacity is already in place at the Gulf Coast, and how much more needs to be developed? Today, we begin a series presenting our latest analysis of crude oil export capacity in the U.S., our forecast for total export demand, and our view of what it all means for the large slate of potential projects.
By their very nature, crude oil gathering systems in the Permian are works in progress. They often start out small, serving only a few wells owned by a single producer — or maybe two or three. Over time, the systems typically branch out to serve more producers and more wells, and they add capacity as drilling activity picks up. Sometimes, they evolve into much larger systems with multiple gathering hubs and regional transport pipelines that shuttle large volumes of gathered crude long distances to big marketing hubs like Crane, TX, and Midland, where the oil can flow into any number of takeaway pipelines to Cushing or the Gulf Coast. Today, we continue our series on Permian crude gathering systems with a look at Oryx Midstream’s 860-mile gathering and regional transport network in the super-hot Delaware Basin.
