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.
Recap – The Story So Far
In Part I of our Permian Basin series (see a copy here) we looked at the renaissance of Permian production in the past three years. In Part II of the series (see a copy here) we looked at the existing Permian transport infrastructure to market. The three main pipelines out of the region ship 0.9 MMb/d of Permian crude into Cushing OK or the Midwest. In Part III (see The Race to The Gulf Coast) we reviewed infrastructure plans to add 0.9 MMb/d of additional pipeline capacity from Permian to the Gulf Coast by the end of 2014.
This time we first review the current crude pricing environment for the two main Permian crude grades - West Texas Intermediate (WTI) and West Texas Sour (WTS) and then explore what happens to pricing once new pipeline capacity to the Gulf Coast opens up over the next two years.