Back in late March and early April, U.S. refineries responded to the sudden falloff in demand for jet fuel and motor gasoline by quickly ramping down their operations. Similarly, E&Ps in recent weeks have reacted to sharply lower demand for crude oil by slowing — or even suspending — their drilling activity and shutting in wells. Midstream companies’ actions have generally been more muted, though. While many midstreamers have ratcheted back their planned 2020 capital spending plans, the bulk of their major crude oil, natural gas and NGL projects already under construction are staying on-plan. Most of the rest are only being delayed by a few months, and a handful are either being reworked or deferred indefinitely. Today, we consider the midstream sector’s seemingly modest response to the crashes in crude oil prices and demand.
As we said earlier this month in Baby Break It Down, when refineries were confronted with a big drop for their products, they rapidly dialed down their capacity utilization — from 87% in the week ended March 20, to 69% in the week ended April 10 — and at least a couple of refineries were simply taken offline. As for U.S. producers, they’ve been responding with a vengeance to this spring’s collapse in crude oil prices and refineries’ demand for crude by “choking back” wells to reduce their output, shutting in thousands of wells and slashing the crude rig count by nearly 60% in two months’ time. As a result, U.S. crude production is down by more than 11% over the same period — the kind of decline that typically happens only in the wake of major hurricanes in the Gulf of Mexico.
In announcements and earnings calls in late March, April and early May, U.S. midstreamers of all sizes and stripes discussed their plans to pull back on 2020 capex. Enterprise Products Partners, for example, announced a $1.1 billion cut, to between $2.5 billion and $3.0 billion, while Energy Transfer said it would trim its original $4 billion capital spending plan by at least 10% and as much as 20%. Targa Resources now expects to spend about $750 million on growth projects this year, or 40% less than the midpoint of its initial plan for the year.
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