New Frontiers: the race to get takeaway capacity out to the West Texas oil fields

Platts ^ | April 21, 2014 | Bridget Hunsucker

[thackney]

US Permian Basin pipeline capacity is slated to soon expand by about 500,000 b/d, matching growing production with takeaway capacity. But the balancing act may be short-lived, as horizontal drilling is expected to unlock more oil in the legacy field.

Producers are applying shale drilling techniques learned in the North Dakota Bakken and South Texas Eagle Ford to the Permian, and some longterm forecasts for the West Texas play have been revised northward in the past year.

The Permian Basin lies under West Texas and southeast New Mexico and historically produces light sweet West Texas Intermediate crude and medium sour West Texas Sour crude.

“The Eagle Ford and Bakken are going to top out before Permian does,” Turner, Mason & Co. Executive Vice President John Auers said last week. “At this point people are starting to get bullish on it.” Some forecasts for the Permian are “definitely higher than six months ago,” he added.

Bentek Energy, a unit of Platts, expects Permian production to increase to about 2.03 million b/d by 2020 from near 1.58 million b/d today, but that forecast could be lower than actual output because it does not take into account initial production rate changes for the last six months, Bentek analyst Jim Klingsporn said.

“For the Permian, the IP has likely increased during this time,” he said, and noted that horizontal rigs are on the rise in the play.

Sixty-seven such rigs have been added since the end of 2013, he said. This means that “our estimates will likely underestimate the number of wells drilled per month,” Klingsporn said.

While production is growing all throughout the Permian, including in the Midland subbasin, Cowen Securities senior analyst Sam Margolin pointed to a portion of the play known as the Delaware sub-basin as having unexpected potential. There, operators are starting to improve well completion techniques to eke out increasing volumes per well.

“The Delaware has been more productive than people thought it would be,” he said, and added that total Permian production has already hit original production targets expected for 2017.

But by next quarter, takeaway capacity additions from the Permian should “add breathing room for a while” to transport current Permian production to market, Auers said.

—————————-

Soon, Magellan Midstream Partners is expected to begin service on its 300,000 b/d BridgeTex oil pipeline joint venture with Occidental Petroleum. The linefill on the Colorado City, Texas-to-Houston line will begin in the late second quarter, the company has said. In addition, Magellan’s 225,000 b/d Crane, Texas-to-East Houston Longhorn crude line is expected to expand to 275,000 b/d in mid-2014.

Sunoco Logistics’ Permian Express 90,000 b/d Wichita Falls-to-Nederland, Texas, crude pipeline is also expected to increase to 150,000 b/d this quarter, analysts said. The midstream company previously said that the line was expected to hit full capacity by late 2013 or early 2014, and was not available to give an updated expansion timeline.

This capacity will be in addition to the current 550,000 b/d of takeaway from the Permian to the US largest storage hub at Cushing, Oklahoma, and about 600,000 b/d that leads to the US Gulf Coast and Longview, Texas, area, Margolin said.

“The new pipelines should bring enough capacity to last” through 2020, Bentek analyst Anthony Starkey said.

And that capacity should also lend strength to recent relatively weak price differentials for West Texas Intermediate and West Texas Sour, sourced at Midland, Texas, that have emerged on the back of pipeline constraints.

“After experiencing generally tight differentials in 2013 (averaging $1.73/b below [WTI-Cushing]), Permian producers have seen local crude prices average $6.37/b below [WTI-Cushing year-to-date] and $9.01/b below since March 1,” Sterne Agee analysts said in a recent note. “Discussions with operators suggest pipeline bottlenecking as midstream infrastructure struggles to keep up with rapid oil production growth in the basin.”

The Permian spot market’s recent volatility has also been attributed to local refinery maintenance and issues last month with Sunoco Logistics’ Mid-Valley Pipeline, which sends Permian crude from Longview, Texas, to Samaria, Michigan.

Upcoming crude pipeline capacity additions should return WTI-Midland and WTS price spreads “closer to transportation economics,” Starkey said.

Auers said that the new pipeline space should also mitigate the effects of local refinery shutdowns on regional crude differentials. There is about 415,000 b/d of local refinery capacity for Permian crudes, he said.

[thackney]

[ckilmer]

“The new pipelines should bring enough capacity to last” through 2020, Bentek analyst Anthony Starkey said.
..............
Is this true?

A mere 500k barrels@day added pipeline capacity?

The Permian Basin is much larger than Eagle Ford and Baaken combined. For the last couple of years —those two fields have been putting on 500k barrels@day or more EACH YEAR.

I say. Not likely. More likely the new pipeline will give them 18 months breathing room. TOPS.

You can already see the problem with their projections in the article as they hedge their bets. With lines like this:

“Bentek Energy, a unit of Platts, expects Permian production to increase to about 2.03 million b/d by 2020 from near 1.58 million b/d today, but that forecast could be lower than actual output because it does not take into account initial production rate changes for the last six months, Bentek analyst Jim Klingsporn said.”

“Sixty-seven such rigs have been added since the end of 2013, he said. This means that “our estimates will likely underestimate the number of wells drilled per month,” Klingsporn said.”

““The Delaware has been more productive than people thought it would be,” he said, and added that total Permian production has already hit original production targets expected for 2017.”

[CedarDave]

NM list PING!

I may not PING for all New Mexico articles. To see New Mexico articles by topic click here: New Mexico Topics

To see NM articles by keyword, click here: New Mexico Keywords

To see the NM Message Page, click here: New Mexico Messages

(The NM list is available on my FR homepage for anyone to use. Let me know if you wish to be added or removed from the list.)
(For ABQ Journal articles requiring a subscription, scroll down to the bottom of the page to view the article for free after answering a question or watching a short video commercial.)