RBN Energy

Battered by a flood of new supply and limited pipeline takeaway capacity, prices for Permian natural gas and crude oil have spent a lot of time in the valley over the past 18 months. West Texas Intermediate (WTI) crude oil prices at the Permian’s Midland Hub traded as much as $20/bbl less than similar quality crude in Houston last year. That’s a big oil-price haircut that producers have had to absorb while ramping up production. However, the collapse in the Permian crude oil differential was tame compared to what happened with Permian natural gas prices. Prices at the Waha Hub in West Texas traded as low as negative $5/MMBtu, a gaping $8/MMBtu discount to benchmark Henry Hub in Louisiana. As bad as that all was, new pipeline takeaway capacity has arrived, and Permian prices are beginning to claw their way out of the depths. Today, we look at how new pipelines are impacting the prices received for Permian natural gas and oil.

Finally, after what seemed like a long period of crude oil pipeline takeaway constraints out of the Permian, significant new takeaway capacity is coming online this month. Just last week, Plains All American’s Cactus II pipeline from the Permian’s Midland Basin to the Corpus Christi area entered service. And on Monday, EPIC Midstream announced that it has begun interim crude service on its EPIC NGL Pipeline, which will move crude from the Permian’s Delaware and Midland basins — also to Corpus — until the company’s EPIC Crude Pipeline starts up in January 2020. With takeaway constraints alleviated, the focus on the crude-oil front now shifts to gathering system capacity, and it’s being added in spades. So much so that we’re writing two full Drill Down Reports (one on the Midland and one on the Delaware) to cover them in detail.  Today, we discuss highlights from the first of our new Drill Down Reports, which focuses on crude oil gathering systems in the fast-growing Midland Basin.

Of the many midstream companies with Permian crude oil gathering systems, a few also own bigger-diameter pipelines that shuttle crude to regional hubs as well as even larger takeaway pipelines to the Gulf Coast. Noble Midstream Partners is one of those that employs this “well-to-water” strategy, which enables midstreamers to participate in multiple links of the value chain; it can also give them better control over oil quality as crude makes its way from wells in West Texas and southeastern New Mexico to coastal refineries and export docks hundreds of miles away. Today, we conclude our series on Permian crude gathering with a look at the master limited partnership’s (MLP) mix of gathering, shuttle and long-haul pipelines.

The Niobrara production area in the Rockies is a complicated place to determine crude oil supply and demand balances. It’s at the crossroads of a number of supply areas, with volumes coming in from Canada and the Bakken, as well as locally from the Powder River and Denver-Julesburg basins. And in terms of destinations, there are well-established local markets, or you can send the molecules to Salt Lake City, or southeast to the Cushing, OK, hub and beyond. The Niobrara is one of the few growth areas we look at where there is substantial pipeline capacity for inflows and outflows, with the option to service multiple markets. Now, there are a couple of new pipeline projects ramping up in the Rockies, and given the region’s interconnectivity, it’s a good bet that the status quo in the Niobrara is in for some big changes. Today, we recap the new pipeline projects and then dive into what it could mean for the midstream balance in the Powder River and D-J.

The news has been out for a few days now: Enterprise Products Partners announced last Tuesday, July 30, that, thanks to new agreements with Chevron, the midstream company has made a final investment decision to proceed with its Sea Port Oil Terminal (SPOT) about 30 miles off the coast of Freeport, TX, pending regulatory approvals. Being out front on this is critically important; even with significant growth in crude oil export volumes through the early 2020s, only one or two new export terminals capable of fully loading Very Large Crude Carriers (VLCCs) are likely to be needed. What was it that enabled Enterprise to move first among a wave of proposed projects? And what does that tell us about the VLCC-ready export terminal projects being advanced by others? Today, we look at the SPOT project and the important roles that existing pipeline and storage infrastructure play in export terminal development.

Crude oil gathering systems in the Permian and elsewhere are, by their very nature, evolving things. They increase in mileage and crude-carrying capacity as new wells are drilled and completed, and it’s not uncommon for smaller systems to be consolidated into larger ones. It’s also become typical for the ownership of these systems to change — sometimes year to year — as early investors cash in on what they’ve developed, and buyers see opportunities to rake in increasing revenue and take their newly acquired systems to the next level. Also, owners of neighboring systems sometimes form joint ventures that combine their assets, all to make their operations work better for their producer customers. Today, we continue our series on Permian gathering with a look at Brazos Midstream’s crude gathering system in the Delaware Basin, which has experienced considerable evolution.

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.