Wide Open Spaces - Does the Permian Have Sufficient Crude Storage Capacity to Prevent Disruptions?

The steady growth in Permian crude oil production that everyone was banking on just a couple of years ago didn’t happen as planned. When COVID intervened, Permian oil output sagged and then stabilized at just over 4 MMb/d until last month’s Deep Freeze, when production plummeted and then quickly rebounded. Still, in anticipation of increasing output from the Permian, new takeaway-pipeline capacity from West Texas to the Gulf Coast was built out over 2016-20, as was new crude storage capacity at hubs in the Delaware and Midland basins to support the operation of the new lines. So, with all that construction, the Permian must be sittin’ pretty from a midstream infrastructure perspective, right? Don’t be too sure. From a big-picture perspective, the region has more than enough takeaway capacity, but there are strong indicators — and recent evidence — that in-region storage capacity hasn’t kept pace to be able to handle any hiccups (and worse) that can occasionally rattle the oil patch. Or maybe it’s just that folks don’t fully understand where the Permian’s storage capacity is, how it’s interconnected, and how it’s used. Today, we begin a blog series on crude storage in West Texas and southeastern New Mexico.

This isn’t our first shot at unravelling the secrets of a major storage hub. We’ve spent time on it before because understanding the nuances of crude oil hubs, large and small, can be really useful. As we said a couple of months ago in Heart of the Matter, our blog about RBN’s new Cushing Playbook, the 93-MMbbl oil storage and distribution megaplex in central Oklahoma is even more complicated than many think, with a complex array of inbound and outbound pipelines, a slew of separate but largely interconnected terminals, and half a dozen categories of storage users, each with its own particular needs and approaches to using storage. The lesson to be learned is that storage at Cushing is like the last 90 seconds of a too-close-to-call game during March Madness, with a lot of fast-moving players and everything in a constant state of flux. You gotta know the game to completely understand what’s going on. And while Cushing is the mother of all U.S. storage hubs, hubs near end-markets like refineries and export terminals — and upstream storage hubs like the ones in the Permian — have their own unique characteristics and challenges.  

Crude oil storage at the major and minor hubs within the 70,000-square-mile Permian has many nuances of its own, but if you’re an active participant or an interested party, it’s just as critical to understand how it all works — for example, how, in a pinch, you can quickly find a place to store 75 Mbbl of West Texas Light in the Delaware Basin, or find a way to get a batch of crude from Terminal A in Crane to Pipeline X in Midland.