Natural gas pipeline takeaway capacity additions out of the Northeast over the past year or two, along with suppressed gas production growth in recent months, have relieved years-long and severe constraints for moving Marcellus/Utica gas out of the region and even left some takeaway pipelines less than full. That, in turn, has supported Appalachian supply prices. Basis at the Dominion South hub in the first five months of 2019 averaged just $0.26/MMBtu below Henry Hub, compared with $0.46 below in the same period last year and nearly $1.00 below back in 2015, when constraints were the norm. Today, we continue our series providing an update on pipeline utilization out of the region, and how much spare capacity is left before constraints reemerge.
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Daily energy Posts
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.
Refineries in Washington state have been reliable buyers of Bakken-sourced crude oil during the Shale Era, receiving an average of about 145 Mb/d — all of it by rail — over the past two-plus years. But a newly approved Washington law slashing the allowable vapor pressure limit for crude being unloaded from rail tank cars could hinder future growth in crude-by-rail shipments from North Dakota to the Evergreen State, or force Bakken producers to remove more butane and other “light ends” from the crude oil they rail west. It’s such a big deal that the state of North Dakota has indicated it will file suit to kill the new law. Today, we discuss Washington’s new law and its potential effects on Bakken crude oil producers.
On its surface, the development of small-diameter crude oil gathering pipeline systems in the Permian may seem like a ho-hum topic. In fact, though, these systems are at the heart of critically important strategies to ensure the reliable, low-cost flow of crude to multiple takeaway pipelines out of the basin, and thereby enhance the oil’s value and minimize financial risk. A case in point is the 50-mile-plus, 100-Mb/d-capacity gathering system that a producer/midstreamer joint venture has been building in the Delaware Basin along the Texas/New Mexico line. Today, we continue our series on Permian gathering systems with a look at WPX Energy and Howard Energy Partners’ new pipes in New Mexico’s Eddy County and Texas’s Loving and Reeves counties.
When it comes to getting crude oil to market, bottlenecks have always existed. Back in 2013-15, producers and shippers in the Rockies faced a serious lack of takeaway options. Midstreamers saw the problem and the money to be made, and quickly built more crude-by-rail capacity — and, over time, pipeline capacity — to fix things. Recently, major takeaway constraints emerged in the Permian, much to the detriment of netbacks at the wellhead. There was real concern for a few months that some producers might need to shut in production as there wasn’t any way to get incremental barrels out of the basin. Again, traders and midstream operators got savvy, restarted some dormant crude-by-rail options, initiated long-haul trucking out of Midland, and added more pipe capacity. But what if the next big bottleneck isn’t between two land-based trading hubs? What if there’s not enough export capacity at terminals along the Gulf Coast, the gateway to international markets? In today’s blog, we examine recent export and production trends, and discuss what those could mean for export infrastructure and logistics over the next five years.
This blog is based on research from Morningstar Commodities. A copy of the original report is available here.
U.S. crude exports out of the Gulf Coast averaged more than 2.4 MMb/d in the first four months of 2019 — using infrastructure that is increasingly constrained by a lack of deepwater ports. U.S. crude is reaching destinations worldwide, with large volumes traveling long distances to Asia on gargantuan 2-MMbbl vessels — Very Large Crude Carriers (VLCCs) — loaded offshore by ship-to-ship transfer. Shipments to Europe are primarily on smaller Suezmax and Aframax vessels. Overall, the increased marine activity is testing the limits of existing infrastructure. Today, we analyze the past 16 months of crude export vessel movements and their impacts on Gulf Coast ports. (We’ll also be discussing this and other critical trends related to U.S. export markets live and in person tomorrow at xPortcon in Houston.)
Crude oil gathering systems do just that — they gather crude from multiple well sites — but the drivers behind their initial development can vary widely. Some gathering systems are developed by oil producers to reduce their use of trucks and more efficiently transport increasing volumes of crude from the lease to takeaway pipelines. Others are the brainchildren of savvy midstream companies that see an opportunity to serve multiple producers in a fast-growing production area. And then there are systems like the one refiner Delek US is now expanding in the Permian’s Midland Basin near the company’s Big Spring, TX, refinery. It’s designed to feed locally produced crude directly to that refinery — and possibly other Delek refineries too — and may potentially be used to help fill a long-haul takeaway pipeline that Delek still hopes to co-develop with partners. Today, we continue our series on Permian gathering systems with a look at Delek’s 200-mile Big Spring project, part of which is already up and running.
The Houston Ship Channel (HSC) is one of the busiest shipping lanes in the U.S. Each year, thousands of vessels utilize the waterway, importing and exporting goods ranging from pharmaceutical products to what the Census Bureau classifies as “Leather Art; Saddlery Etc.; Handbags Etc.; Gut Art”. More to the point of today’s blog: over 10 million tons of energy products move through the channel each month. But as ships grow ever larger, the ports and canals that service them must also adapt to be able to handle their increased dimensions. The Houston Ship Channel now finds itself in a situation where it must adapt to meet increasing market demands. Today, we continue our series on the issues facing some Texas ports and the measures being taken to help alleviate them.
Crude oil gathering systems are, by their very nature, growing and evolving things, especially in super-hot shale plays like the Permian. These systems typically sprout when economics and the expectation of growing production support the development of small-diameter pipeline networks to transport crude from the lease to takeaway pipes — reducing the need for truck deliveries in the process. They then are organically extended as drilling-and-completion activity expands into nearby areas. Over time, some crude gathering systems grow so large — and are so well interconnected with takeaway pipelines — that they become intra-basin header systems that allow shippers to move crude to many interconnection points, thereby providing the highest level of destination optionality. Today, we look at one such highly evolved gathering system — Medallion Midstream’s gathering/header network in the Midland Basin — and at other Medallion pipes that gather Delaware Basin crude oil.
It may be easy to forget in these days of Permian this and Permian that, but crude oil production in the offshore Gulf of Mexico (GOM) set a number of new, all-time records in the past couple of years. Better yet, with a handful of key producers in the Gulf planning low-cost, subsea tiebacks to existing platforms — and still discovering more oil — it’s a good bet that offshore production will continue its upward trajectory into the early 2020s. And, unlike U.S. shale wells, whose production peaks early then trails off, wells in the GOM typically maintain high levels of production for years and years. Where do offshore production and drilling activity stand in the Shale Era, and where are they headed? Today, we review recent production gains in the Gulf and examine why the GOM remains the oil sector’s Energizer Bunny.
Old age and treachery will always beat youth and exuberance. So the saying goes, and it often holds true for midstream projects as well as people. Many times we’ve written that existing pipe in the ground beats new pipeline projects; it’s frequently easier and faster to expand the capacity of an older pipe than it is to build an entirely new pipeline. But eventually, contracts on these old pipelines expire, and as they do, shippers may have new, more attractive options — maybe proposed new pipes offer better connections to gathering systems, the ability to segregate batches of crude oil, and/or access to more desirable markets. Most importantly, they probably are willing to charge a lower tariff. In the Permian, we’ve seen a slew of new pipelines advance to construction by promising lower and lower shipping costs to move crude from West Texas to the Gulf Coast. Today, we look at how older pipelines’ re-contracting efforts will be affected by their competitors’ lower tariffs and operational advantages.
In terms of raw tonnage, the Port of Houston is by far the busiest in the United States. The 52-mile-long Houston Ship Channel (HSC) — running from just outside downtown Houston out to an area between Galveston Island and Bolivar Peninsula — is the artery that enables the heavy ship traffic, much of it tied to crude oil, LPG, petroleum products and other hydrocarbons. But in the same way that Houston’s Interstate 45 traffic backs up during the morning commute, the ship channel traffic, which normally runs at about 60% of peak levels, can be (and has been) subject to delays when there’s an accident, visibility problems, or a slow-moving double-wide taking up two lanes. With energy-related export activity on the rise, efforts are underway to address those issues. Today, we begin a series on the issues facing some Texas ports and the measures being taken to help alleviate them.
The run-up in Permian crude oil production over the past few years — and the expectation of continued gains — has been spurring the development of a number of crude gathering systems in the play’s Midland and Delaware basins. These small-diameter pipeline networks are critically important to producers and shippers in that they enable them to transport crude more quickly and cost-effectively than by truck, and (ideally) they connect to takeaway pipelines that flow to multiple destinations. But there is more than one approach to developing a gathering system. For example, a midstream company could plan a system that appeals to several producers in an area and then try to sign them up. Or, it might work closely with a single producer — sometimes an affiliated company — and design a gathering system to meet its specific needs, then work to add other producers and shippers later. Today, we look at the West Texas and southeastern New Mexico systems developed by a joint-venture company of Matador Resources and Five Point Energy to serve Matador and others.
The competition among midstream companies to transport light, sweet U.S. crude to Louisiana refineries and to the Louisiana Offshore Oil Port (LOOP) is heating up. On April 1, Energy Transfer and Phillips 66 Partners finally started up the Lake Charles-to-St. James portion of their Bayou Bridge pipeline, which is designed to move light oil to the heart of Louisiana’s refining country. Two weeks later, Shell initiated an open season for newly available space on its Zydeco Pipeline from Houston to the St. James and Clovelly hubs, the latter of which can send crude to either local refineries or LOOP — the only Gulf Coast port currently able to fully load Very Large Crude Carriers (VLCCs). Then, earlier this week, Bayou Bridge’s co-owners launched an open season of their own, this one to gauge shipper interest in joint-tariff transportation service on certain connecting pipes that haul light crude from the Bakken, the Niobrara, the Cushing crude hub and the Permian. The fight for barrels doesn’t end there — don’t forget plans for the Capline reversal and the Seahorse, ACE and Swordfish pipelines, all of which also are targeting Louisiana refineries and/or the export market. Game on! Today, we update midstreamers’ efforts to transport more high-API-gravity oil to Louisiana refineries and LOOP.