Permian to Gulf Coast Crude Oil Differential Wide Enough to Justify New Pipe?

Over the past three-plus years, Corpus Christi has dominated the U.S. crude oil export market, largely because of the availability of straight-shot pipeline access from the Permian to two Corpus-area terminals at Ingleside — Enbridge Ingleside Energy Center (EIEC) and South Texas Gateway (STG) — that can partially load the huge 2-MMbbl VLCCs (Very Large Crude Carriers). But capacity on the pipes to Corpus is now nearly maxed out and, with Permian production rising and exports strong, an increasing share of West Texas crude output is instead being sent to Houston on pipelines with capacity to spare. The catch for Permian shippers with capacity on Permian-to-Houston pipes is that the Midland-to-MEH (Magellan East Houston) price differential for WTI has been depressingly low —$0.22/bbl on average this year, compared to almost $20/bbl for a few months in 2018 and averaging $5.50/bbl as recently as 2019. However, the Midland-to-MEH WTI price spread looks to be on the verge of a rebound of sorts, as we discuss in today’s RBN blog.

The largest crude oil pipeline exiting the Permian Basin by volume — Wink to Webster (W2W) — is planned to be offline for maintenance for the first 10 days of June. This is inclusive of Enterprise’s Midland-to-ECHO III (ME III), which reflects the company’s 29% undivided joint interest in W2W. Although the outage has not been publicly confirmed, it’s our understanding that 1.5 MMb/d of capacity will be offline to reroute a small section of pipeline. In today’s RBN blog, we’ll examine how the planned maintenance will impact Permian Basin oil takeaway capacity and what it may mean for Midland WTI pricing. 

Sixty percent of crude oil produced in the U.S. is exported, either as crude or in the form of gasoline, diesel, jet fuel or other petroleum products. Sure, a lot of crude and products are still imported, but the net import number is dwindling toward zero — and if you throw NGLs into the liquid fuels balance, the U.S. has been a net exporter since 2020. Yes, exports are now calling the shots in U.S. liquid fuel flow patterns, price differentials, infrastructure utilization and, to a great extent, the winners and losers in crude oil and product markets. It’s going to get way more intense as export economics increasingly dominate which pipelines, refineries and port facilities capture production growth from the Permian and other basins. In today’s RBN blog, we begin a series to explore this revolutionary shift in fortunes, why barrels move where they do and what it all means for U.S. producers, midstreamers, refiners, marketers, and exporters. And a warning! This is a subliminal advertorial for our upcoming xPortCon-Oil conference.