The Permian Basin is awash in light, sweet crude oil that’s cheap to produce and easy to process. It’s so awash, in fact, that supplies are overwhelming takeaway pipeline capacity. The resulting bottleneck in West Texas has cratered prices in Midland, where West Texas Intermediate (WTI) — the region’s light, sweet benchmark — has blown out price-wise against the same grade in other locations, including Houston, with its crude-export docks. Less well known, but influential beyond its geography, is Midland West Texas Sour, or WTS. WTS is suffering from the same wide differentials as WTI at Midland, and those yawning spreads are dragging down the price of Maya, Pemex’s flagship heavy, sour crude. Today, we discuss some surprising ripple effects of takeaway constraints out of the Permian.
For the past several months shippers in Midland, TX – in the middle of the prolific Permian Basin - have been paying premiums up to $2/Bbl over the benchmark Cushing, OK trading hub price for West Texas Intermediate (WTI) crude. That means shipping WTI from Midland to Cushing is a money losing proposition. Historically Cushing WTI has traded at a premium to Midland – usually at least covering the ~$1/Bbl pipeline tariff. Today we explain how traditional price dynamics have been turned upside down.
Western Canadian Select (WCS) – the benchmark for Canadian crude sold at Hardisty in Alberta fetched just $32.29/Bbl on Friday (July 24, 2015) down 60% from $81.34/Bbl a year ago in July 2014. That year has seen big changes in the U.S. oil market with drilling rig cutbacks and declining new production rates. The challenges for Canadian producers have not changed much in the short term – with transport capacity to market still top of the list. Trouble is that every time transport congestion occurs it pushes price discounts higher and lowers producer returns. Today we discuss the relationship between Western Canadian crude production and prices.
Although as everyone ought to know by now, overall crude prices have dropped more than 35% in the past six months, prospects for the prolific Permian Basin continue to look rosy. Wide price discounts experienced by Permian producers at Midland, TX versus West Texas Intermediate (WTI) crude delivered to Cushing, OK over the past 13 months have narrowed recently in anticipation of the Plains All American Sunrise pipeline coming online. Permian production has been surging all year and midstream companies continue to invest in and expand takeaway capacity. Today we review ongoing infrastructure plans to handle growing output.
The September 29, 2014 opening of the BridgeTex pipeline – 5 months later than expected - between Colorado City in the Permian Basin and Houston was expected to bring immediate relief to West Texas producers with crude stranded by a lack of pipeline takeaway capacity. In the past year those producers have had to eat price discounts of $14/Bbl or more in order to find space on crowded pipelines. But although BridgeTex has provided some relief, the congestion will continue until early next year. Today we explain why.
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.
Prices for West Texas Intermediate (WTI) crude at Midland, TX -- close to the Permian Basin production region -- traded at a discount of $7.78/Bbl to WTI at Cushing, OK on Monday of this week (3/10/14), even though the pipeline tariff between the two trading hubs is less than $1/Bbl. Soaring production and tight pipeline capacity out of West Texas mean small changes in the region’s supply balance can cause the discount to blow out - a situation expected to continue at least until the middle of 2014. Today we investigate the probable causes.
Crude oil and diluent pipelines running through the two largest Canadian marketing and transportation hubs at Hardisty and Edmonton in Alberta have current capacity of 3.9 MMb/d. That will double to 8 MMb/d by 2018 if currently planned projects are completed. Getting the resultant expanding flows of crude and diluent in and out of Alberta via these hubs poses the same challenge that Gulf Coast operators are facing from the flood of crude descending on them from the US and Canada. Today we begin a new series detailing midstream Canadian terminal operations at Hardisty and Edmonton.
The Houston crude oil distribution system is gearing up to handle a flood of new supplies from over 1.7 MMb/d of pipeline capacity delivering into the region by the end of Q2 2014. A trading market is also developing for producers and shippers selling that crude to Gulf Coast refiners. New grades of both light and heavy crude are showing up – principally from the Eagle Ford, the Permian Basin, North Dakota and Western Canada. Will a new crude trading market develop in Houston to rival those at Cushing, OK and St. James, LA? Today we look at the evolving Houston crude market.
Permian crude production increased by 26 percent between January 2012 and May 2013 according to Bentek. Production is now about 1.4 MMb/d - virtually the same as existing pipeline takeaway capacity and local crude consumption. That tight balance has caused considerable price volatility between Midland, TX in the production region and Cushing, OK in the past year. Today we begin an updated analysis of Permian production and takeaway capacity.
The proposed $2 Billion Kinder Morgan Freedom pipeline project is conducting an open season for shipper commitments from West Texas to California. The California refining market has long operated like an island within the US and has so far received few supplies from new domestic production. To proceed with the project Kinder need shippers to make long term commitments but today’s unsettled markets place a premium on flexibility. Today we conclude our two-part analysis of the chances that the pipeline will get built.
Kinder Morgan is conducting an open season to convert an El Paso Natural Gas pipeline to crude oil service from the Permian Basin in West Texas to California refineries. The ”Freedom Pipeline” project would cost as much as $2 Billion. Before going ahead they need to convince crude producers in the Permian and/or refiners in California to make long term commitments to the pipeline. Today we begin a two part assessment of the chances that this pipeline will get built.
Last week (see Sailing Stormy Waters) we reviewed limited market options for Western Canadian heavy bitumen crude producers. The US Gulf Coast is the only viable market with significant refinery capacity to process these crudes. At the moment there is limited transport infrastructure in place to get them there. As a result prices are being heavily discounted in the over supplied Midwest market. The Canadian benchmark Western Canadian Select (WCS) price traded this January at a discount of more than $38/Bbl to the US benchmark West Texas Intermediate (WTI). Today we examine how much prices are likely to improve once the pipelines are built.
The West Texas Intermediate (WTI) discount to Brent has narrowed 30 percent in 2013 to close at $13.95/Bbl on Friday March 22, 2013. At the same time Gulf Coast Light Louisiana Sweet (LLS) prices have moved unexpectedly to a $6.75/Bbl premium over Brent. Is the WTI discount to Brent finally unwinding? If so – then why are LLS prices trading above Brent? Today we update our analysis of the WTI/Brent spread.
Permian crude production is experiencing a renaissance. This month (September 2012) Bentek estimated current production at 1.3 MMb/d. Most of that production not absorbed by local refineries is shipped to Cushing or further into the Midwest where prices are depressed versus the Gulf Coast. New takeaway capacity projects look to change that balance towards the Gulf Coast over the next two years. Today we explore how West Texas crude prices will be impacted by access to the Gulf Coast.