Sign o' the Times - A Tough Year for Crude Oil Slows Pipeline Development to a Crawl

Bombarded by COVID-related demand destruction and weak — sometimes dismal — crude oil pricing, producers have been pulling in their horns this year, and midstream companies have been doing the same. A number of major pipeline projects have been delayed, scrapped, or simply removed from midstreamers’ slide-deck presentations, having failed to garner the long-term shipper commitments they needed to remain viable in this era of retrenchment and fingers-crossed-we-survive. Even with the 2020 pullback in pipeline development, at least a couple of major production areas — the Permian and the Bakken — may well end up with considerably more takeaway capacity than they will need for the foreseeable future. Today, we discuss the oil pipeline projects that have stalled or died this year, and the ones that have managed to move forward despite it all.

Only a couple of years ago, it was hard to keep up with all the crude oil pipeline projects being announced. In some cases, competing midstream companies were proposing multiple solutions to the same perceived needs. For example, in the summer and fall of 2018, four major pipeline projects to transport oil from the Cushing, OK, storage and distribution hub to the Gulf Coast were unveiled:

• Tallgrass Energy’s proposed 700-mile Seahorse Pipeline (dashed red-and-black line in Figure 1) from Cushing to the storage, distribution, and refinery hub in St. James, LA, and from there to a new, marine terminal Tallgrass also was planning to build a few miles down the Mississippi River in Plaquemines Parish, LA. Announced in August 2018, Seahorse would have a capacity of up to 800 Mb/d.
• Magellan Midstream Partners and Navigator Energy Services’ planned Voyager Pipeline System (dashed aqua-and-black line), announced in November 2018, which would be capable of transporting at least 250 Mb/d from Cushing to the Magellan East Houston (MEH) terminal in Houston and, from there, to refineries in the Houston/Texas City area or to crude oil export facilities such as Magellan’s Seabrook Logistics joint venture (JV) terminal.
• Phillips 66 and Plains All American’s proposed Red Oak Pipeline (dashed green-and-black line) — also announced two years ago this month — which would have moved up to 800 Mb/d from Cushing to Wichita Falls, TX, then south to Sealy, TX, where the pipeline would split, with laterals headed south to Corpus Christi and east to Houston and Beaumont, TX.
• DCP Midstream and SemGroup’s planned 300-Mb/d Gladiator Pipeline (dashed purple-and-black line) from SemGroup’s Cushing terminal to Moore Road Junction in the Houston area, plans for which were announced in December 2018. (SemGroup was later acquired by Energy Transfer.) The Gladiator project would involve the conversion of DCP’s existing Southern Hills NGL pipeline to crude oil service, as well as the addition of small sections of new pipeline at Southern Hills’ starting and ending points –– all by the third quarter of 2020.