To rectify the problem of declining pipeline capacity, oil producers are turning to trucks and rail to transport their product to refiners and export terminals on the Texas Coast.
The San Antonio Express-News reports there are two basic reasons for the transportation shift. One is the increased production in the Permian. The International Energy Agency predicts that the U.S. will add about 3.7 million barrels per day (mb/d) between now and 2023.
Production has already reached 3.6 million barrels a day, while pipeline capacity out of the region is just 3.5 million barrels a day, according to the energy research firm Wood Mackenzie.
Crude is selling for as much as $10 more a barrel in South Texas, the Gulf Coast and other markets outside of West Texas, where inventories are building in part because of the lack of pipeline capacity. And as OilPrice.com points out, the Permian and the Eagle Ford shale sites are a long way from the Gulf coast.
Latest effort to move oil
Last month, the Houston oil transport company JupiterMLP signed a deal with Vista Proppants and Logistics of Fort Worth, to ship West Texas crude by rail from Vista’s Pecos loading terminal. Vista plans on shipping about 400,000 barrels of crude a month clear into 2019 and maybe even into 2020, depending on when additional pipelines can be built.
The Houston Chronicle is reporting that JupiterMLP has completed permitting to build a processing and export terminal at the Port of Brownsville and plans a 670-mile pipeline from West Texas to the export terminal. Neither JupiterMLP or Vista has responded to requests for comment.
near Alvarado, Texas.
Pipeline capacity in the Permian
The United States has the largest network of energy pipelines in the world, with more than 2.4 million miles of pipe. The network of crude oil pipelines in the U.S. is extensive. There are approximately 72,000 miles of crude oil lines in the U.S. that connect regional markets.
But in West Texas, energy companies are now faced with both crude and natural gas exceeding capacity and created bottlenecks.
This has caused not only a bottleneck but is affecting prices and production, forcing producers to sell at a discount, which has reached as high as $20 per barrel relative to WTI.
There are limits to the region’s pipeline capabilities. As of December 2017, according to the IEA, there was only about 160,000 bpd of available space on the region’s pipeline system or about 4 percent of Texas’ output.
“This small capacity cushion is likely to come under pressure this year, despite capacity expansions of the Midland to Sealy, BridgeTex and Permian Express 3 pipelines,” IEA analyst Olivier Lejeune wrote in a March 28 commentary.
“Ultimately, Permian and Eagle Ford takeaway capacity is likely to become insufficient by mid-year, with a deficit possibly reaching as much as 290,000 barrels a day during the first half of 2019.”
The pipeline problem is far-reaching and will impact the trucking industry — which is already grappling with a shortage of drivers — as well as the concerns over the massive amounts of sand and water being used for hydraulic fracturing.
