Only a few months after major crude oil takeaway constraints out of the Permian Basin caused price spreads to widen, the pipeline network serving the U.S.’s most prolific shale play may be on the brink of becoming overbuilt. We’ve already seen a number of new expansions and pipeline conversions completed in the past six months, and construction is underway on another 2 MMb/d of new pipeline capacity scheduled to come online between now and the first quarter of 2020. Beyond that, a few remaining projects have been proposed but have not yet reached final investment decisions. No midstream group wants to build a pipeline that will be half full, and no producer wants to make a 10-year commitment to a pipeline if there are going to be plenty of other options available. So who blinks first? In today’s blog, we review the Permian pipeline projects that are still on the fence and examine what factors will determine whether they end up being a “go” or a “no.”
In Part 1 of this series, we looked at the recent pipeline expansions that have contributed to a sizeable bump-up in Permian takeaway capacity and a tightening in price spreads in the basin. All in, the Permian was able to swiftly increase pipeline capacity by 635 Mb/d in just under six months. The build-out started with Plains All American’s Sunrise Expansion (350 Mb/d) in November 2018, followed by a 40-Mb/d increase in BridgeTex’s capacity at the end of last year, a 45-Mb/d expansion of Enterprise Products Partners’ Midland-to-Echo pipeline in March 2019, and finally, Enterprise’s most recent conversion of an existing NGL pipeline to crude oil service, which added 200 Mb/d of capacity. Also in Part 1, we discussed the pipeline projects that are currently under construction. Between Plains’ Cactus II, EPIC’s EPIC Crude, and Phillips 66/Enbridge’s Gray Oak pipelines (white rectangles in Figure 1 below), there is upwards of 2 MMb/d of new pipeline capacity that should be completed and in-service by this time next year, with at least 1 MMb/d of that likely to come online by the third or fourth quarter of 2019.
While that may seem like a lot of new pipeline capacity (and it is!), that’s not all. There are two major projects still in the planning/early construction phase, but their outcomes are still unclear as of now. First up, we have the Permian Gulf Coast (PGC) pipeline (dashed blue line and lower yellow rectangle in Figure 1). This proposed system, with a potential capacity of between 600 Mb/d and 1 MMb/d, would transport crude from the Midland, TX, area to both Houston and Energy Transfer’s terminal in Nederland, TX. Initially, PGC was backed by Magellan Midstream Partners, Energy Transfer, Delek US and Marathon Petroleum’s MPLX. Most recently, in a March 25 regulatory filing, Magellan stated that it felt the project was unlikely to proceed, and dropped its backing of the system. Making the situation even more interesting, various executives at Magellan have expressed, during investor presentations, interest in combining the PGC system with another pipeline: namely, the Wink-to-Webster pipeline (dashed green line and upper yellow rectangle). In recent investor presentations, Energy Transfer, Delek, and MPLX have all noted that they are pursuing a long-haul pipeline from the Permian to the Gulf Coast, but have not explicitly said whether that is PGC Version 2.0 or a combination with the Wink-to-Webster system. Wink-to-Webster, with a planned capacity of at least 1 MMb/d, has been proposed by Plains All American, ExxonMobil and Lotus Midstream, and would move volume from the regional hubs in Wink (TX) and Midland in the Permian to Houston, Texas City, and Beaumont along the Gulf Coast. Plains, ExxonMobil and Lotus have indicated they are planning to move forward on their project.