Midstream firms announce new Permian crude pipeline plans

09 October 2018, Week 40, Issue 427

The Permian Basin’s oil takeaway capacity bottlenecks are not expected to be alleviated until the second half of 2019 – and midstream companies are rushing to provide relief as fast as possible. In the last few days, both EPIC Midstream and Noble Midstream Partners have announced re-jigged or new crude-oriented plans. 

A lack of pipelines in the basin, which is the US’ leading oil production region, is now threatening output growth, particularly for crude, and to a lesser degree gas and natural gas liquids (NGLs). As gas production is largely a by-product of drilling for oil in the basin, however, producers are primarily concerned about the oil pipeline bottlenecks.

EPIC, which is backed by private equity, has said that it will temporarily convert an NGL pipeline it is currently building in Texas to crude service. It is planning to start carrying oil in the 730-mile (1,175-km) pipeline in the third quarter of 2019 until January 2020, when the nearby crude pipeline it is building is expected to enter service. 

The 24-inch (610-mm) NGL pipeline, from Crane to Corpus Christi on the Gulf Coast, will have a capacity of 400,000 bpd of oil for its interim crude service. Committed shippers on the crude pipeline include Noble Energy, Apache and Diamondback Energy. EPIC also said it had decided to upsize the capacity of this second pipeline from 24 inches to 30 inches (762 mm).

“We are proud to be able to offer an interim solution for our customers, while we continue to build out the EPIC crude oil pipeline to service this region,” said EPIC’s CEO, Phillip Mezey. “Given our recent commercial success and subsequent upsizing of the [crude] pipeline, we remain responsive to growing demand for crude oil transportation from the Permian Basin.”

With the conversion to crude, the pipeline will be “the first of the five-pipeline ‘wall of capacity’ that will come on stream in 2019 and 2020”, Mizuho Securities USA’s managing director, Paul Sankey, said in a note.

 

Joint venture

Meanwhile, Noble Midstream said it had entered into a letter of intent (LoI) with Salt Creek Midstream to form a 50:50 joint venture (JV) on a crude pipeline and gathering system in the Permian’s Delaware sub-basin. 

Noble said that the JV would be underpinned by acreage contributions from Noble Midstream and Salt Creek amounting to 180,000 dedicated acres (728 square km) from Noble Energy and five other producers in the southern Delaware. The companies added they had a “line of sight” to additional dedications totalling roughly 100,000 acres (405 square km).

Salt Creek has started construction on the pipeline, which is expected online in the second quarter of 2019. It will provide access to 200,000 barrels of new crude storage, with the potential for expansion to 300,000 barrels. The five-year net capital investment for Noble is anticipated to amount to around US$60-80 million. 

“The pipeline system will provide critical downstream connectivity and enhanced market optionality for producers in the southern Delaware Basin,” said Noble Midstream’s CEO, Terry Gerhart.

The takeaway capacity problem is currently so pressing that crude in the Permian has been selling at a considerable discount to oil traded elsewhere. In Midland, in the Permian, on October 5 oil was selling for US$15.60 per barrel less than in Houston – which is only 480 miles (772 km) to the south-east. When the year started, the discount was US$3.40 per barrel, reported Bloomberg. 

However, once new pipelines come online in 2019 and 2020, capacity is anticipated to exceed production by an estimated 1.5 million bpd – perhaps enough for 2-3 years of growth. This is expected to be a welcome boost for local oil prices. A Raymond James report released in late September forecast that the price differential for Midland oil compared with Brent would be an estimated US$15 per barrel for 2019, down from the firm’s previous prediction of US$25 per barrel. 

 

Edited by

Anna Kachkova

Editor

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