Gathering System

The next wave of Permian crude oil pipeline infrastructure is getting completed as we speak. In West Texas, several new pipeline projects are either finalizing their commercial terms and agreements, wrapping up the permitting process, or actually putting steel in the ground. In the Permian alone, there is a potential for 4.3 MMb/d of new pipeline takeaway capacity to get built in the next two and a half years. Along with those major long-haul pipelines, there are also crude gathering systems being developed to help move production from the wellhead to an intermediary point along one of the big new takeaway pipes. While we often like to give pipeline projects concrete timelines with hard-and-fast online dates, the actual logistics of how producers, traders and midstream companies all bring a pipeline from linefill to full commercial service are never clean and simple. There can be a lot of headaches, learning curves, and expensive — not to mention time-consuming — problem-solving exercises that come with the start-up process. In today’s blog, we discuss why new pipelines often experience growing pains, and how market participants navigate the early days of new systems.

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.

While crude oil takeaway capacity out of the Permian Basin from major hubs is probably overbuilt for the time being that is not the case for gathering systems bringing barrels from the wellhead to mainline terminals. Production in the Permian has slowed since the drop in oil prices reduced drilling activity but is still increasing from sweet spots in the Midland and Delaware basins in West Texas where pipeline gathering can save producers as much as $2/Bbl in trucking fees. Today we continue our review of gathering infrastructure build out to deliver more crude to takeaway hubs in the Permian.

Permian Basin crude production more than doubled since 2011 to reach nearly 2 MMb/d today, but that rate of increase has leveled off since prices crashed last year. Meantime 750Mb/d of long-haul pipeline takeaway capacity came online in the first half of 2015 - greatly exceeding today’s take-away requirements. And there is more to come next year when the 470 Mb/d Enterprise Midland-to-Sealy pipeline is expected online – leading to fears regional pipeline infrastructure is overbuilt. How about inside the Permian Basin? Today we start a series reviewing Permian gathering system build out.

Producers in the Bakken are making progress reducing the natural gas flaring that had put an unwelcome spotlight on the region. The fix, spurred in part by tightening regulations, is being made possible by the addition of new gas processing capacity and increased efforts to use “stranded” gas at the well-site. (A drilling slowdown associated with soft crude prices is providing an assist.) Today, we take a fresh look at what’s been happening on the flaring front in western North Dakota, where gas flares still light the nighttime sky.

There is talk that natural gas flaring in the Bakken is peaking and will soon start to decline. But even the most optimistic forecast has the share of gas being flared falling from the current 30% plus to between 5 and 10% by 2020. That goal is still 10 to 20 times the 0.5% share of gas being flared in Texas. Can more be done to reduce Bakken flaring to Texas levels? Today we look at what it would take to slow Bakken flaring to a flicker.

Permian Basin crude production is expanding rapidly. At over 1.5 MMb/d it already represents nearly 19 percent of total US crude output. Midstream companies are busy developing more than a dozen gathering system extensions and additions to deliver Permian production to about 1 MMBbl of mainline pipeline capacity coming online between the start of 2013 and 2015. In today’s blog we detail planned improvements to the Basin and Cactus pipelines.

The next six months look set to be quite turbulent for Permian Basin producers. Crude production is now over 1.5 MMb/d and supplies trying to get to market are facing congested pipelines leading to price discounts. New capacity is due online in June in the shape of the 300 Mb/d Magellan/Occidental joint venture BridgeTex pipeline. But many Permian producers are also awaiting the build out of gathering systems to deliver their crude to regional hubs in Crane, Midland and Colorado City where the major takeaway pipelines originate. At least a dozen of these systems are currently being developed. Today we start a new series on the build out of Permian gathering infrastructure.