Running On Empty – Permian Basin Refinery and Crude Gathering System Expansions

Refiners operating in the Permian Basin enjoyed healthy margins over the past four years as takeaway pipeline congestion discounted the price of local crude compared to market centers at Cushing, OK or the Gulf Coast. Although that trend reversed for a few months this summer when a shortage of crude at Midland caused prices to spike higher, the market is once again favoring local purchasers. As a result, refiners have invested in infrastructure to increase deliveries of local crude to their refineries as well as leveraging their gathering pipelines to double as takeaway routes for producers shipping outside the basin.  Today we continue our review of Permian infrastructure build out.

In Episode 1 we summarized the changing balance over the past year between Permian crude production and pipeline takeaway capacity out of the region. With new pipelines coming online since the end of last year to Houston (the 300 Mb/d Plains All American/Magellan Midstream Partners BridgeTex pipeline) Corpus Christi (the 250 Mb/d Plains Cactus pipeline) and Nederland (the 200 Mb/d Sunoco Logistics Permian Express II pipeline) takeaway capacity out of the basin is looking overbuilt – especially considering the new 540 Mb/d Enterprise Products Partners Midland to Sealy pipeline expected online in mid-2017.  Meantime production overall in the Permian is slowing down although it looks to be still increasing slightly. Yet Permian wells remain among the most productive in U.S. shale plays and drilling continues in the sweet spot areas of the play – the Midland and Delaware basins. Consequently there is considerable pipeline infrastructure being built out to connect new production to the big takeaway pipeline hubs in the Permian. In Episode 1 and Episode 2 we updated progress on Permian gathering projects first detailed last summer in our “Come Gather ‘Round Pipelines” series. Most of these projects are still on schedule although the focus and scope of some has changed. This time we look first at progress on projects by two Permian refiners to increase crude supply options and then at more recently announced infrastructure projects operated by Energy Transfer Equity subsidiary companies.

Western Refining

Western is an independent refining and marketing company that operates two refineries in the southwestern US at El Paso, TX (128 Mb/d) and Gallup, NM (25 Mb/d). In April 2014 Western announced plans to link together and expand the crude gathering systems for these two refineries to allow producers using the pipelines to ship crude to the Wink gateway out of the Basin (see Come Gather ‘Round Pipelines Part 6). The first part of that project – a 75 Mb/d extension to the existing TexNew Mex Pipeline connecting with the company’s Mason Station that is linked to Kinder Morgan’s Wink to El Paso crude pipeline has been completed – flowing an average 17 Mb/d in July 2015 according to company filings with the SEC (see green lines on map in Figure #1). The second part of the project – the 125 Mb/d Bobcat pipeline from the Mason station to Western’s Jackrabbit station at Wink began flowing crude last month (November 2015 – blue arrow in Figure #1). The Bobcat pipeline allows crude from Western gathering systems in the Delaware, San Juan and Paradox basins to be shipped to market destinations outside the Permian via Midland (Basin pipeline) or McCamey (Cactus pipeline) on the Plains system from Wink (orange arrows on the map). Throughputs on the pipeline are expected to average 25-30 Mb/d through 2016 the company said.

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