For several years now, almost all the Permian’s incremental crude oil production has moved to export markets along the Gulf Coast. Due to new pipeline capacity and shipping cost advantages, Corpus Christi has enjoyed a disproportionate share of those volumes. But the market is shifting. Pipelines to Corpus are filling up, and that is pushing more oil to Houston for export — and to Beaumont for ExxonMobil’s new 250-Mb/d refinery expansion. Unless the pipes to Corpus expand their capacity, much more oil supply will be targeting Houston, with important implications for pipeline capacity, dock capacity, and regional price differentials. In today’s RBN blog, we explore these issues and what could throw a curveball into the whole Gulf Coast crude oil market.
This is the third blog in our series about crude oil and product exports, where we’re looking at why barrels move where they do and what it means for U.S. producers, midstreamers, refiners, marketers, and exporters. In Calling the Shots, we asserted the importance of export flows to U.S. domestic crude markets, including flows to major destinations, how shipping costs drive those flows, and the impact of these factors on regional price spreads. Then, in Sooner or Later, we considered the increase in Corpus’s share of exports, which soared from 28% in 2018 to 60% in 2022. That analysis looked at volumes moving on individual pipes to Corpus and the dwindling available capacity on those pipes.
If it is not going to Corpus, Permian production has got to go somewhere, right? And increasingly, that is Houston. As shown in Figure 1, Houston-bound Permian volumes held steady at about 1.5 MMb/d from early 2019 through late 2021 — sagging a bit during the worst of COVID — then started taking off, rising to 2.3 MMb/d in November 2022 through January 2023. Most of the increase kicked in in late 2021 with the startup of Wink-to-Webster (W2W; blue layer in graph and blue line in map), although there was also an increase in flows starting in October 2020 as the Enterprise Midland‐to‐ECHO 3 pipe (M2E3; orange layer and line; undivided interest with W2W) pulled volumes away from the Enterprise Midland-to-Echo 1 & 2 pipes (M2E1/M2E2; brown layer and line). Volumes on Magellan’s BridgeTex and Longhorn systems (green and yellow layers and lines) have declined slightly. All those flow shifts make sense: Barrels tend to migrate to newer pipelines due to the minimum volume commitments (MVCs) on those recently contracted pipes.
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