Enterprise’s Midland-to-Sealy pipeline, which was slated to come online by Q4 2017, may not be completed on time. In aerial imagery collected June 9, Genscape observed construction delays on nearly 25 percent of the route. The 450,000 bpd, 24-inch pipeline will be operated by Enterprise when completed and will flow from Midland, TX, to the company’s storage facility in Sealy, TX. From Sealy, crude can move to the Houston ECHO storage facility via Enterprise’s existing 1mn bpd Rancho II pipeline.
Genscape’s analysis of the June 9 aerial imagery showed that virtually the entire right-of-way (ROW) from Midland to Georgetown, TX, was cleared, with piping material strung along the majority of the ROW. Numerous construction crews were also spotted along the route, engaged in both trenching activity under roadways and the laying of piping along the ROW.
However, signs of significant delays were identified downstream of Georgetown. Land had yet to be cleared along the nearly 110-mile stretch from Georgetown to Sealy, which represents over a quarter of the total route. Furthermore, a pump station that had originally been planned at Georgetown was ultimately scrapped after having faced opposition from a local land owner, according to the city’s Planning Director. It is not clear if the pump station will be relocated, or how the initial capacity of the pipeline will be affected.
Delays were also apparent along the stretch of ROW between Midland and Georgetown. The Tennyson pump station, located approximately 100 miles east of Midland, was still in the very early stages of development as of June 9. Land was still being cleared, and concrete platforms had yet to be poured. Moreover, a nearly mile and a half stretch of ROW just east of Midland had yet to be cleared at all.
The Midland-to-Sealy pipeline will provide a direct route from the Permian supply hub to U.S. Gulf Coast markets via its connectivity to the ECHO terminal in Houston. The pipeline is slated to segregate four different crude types: West Texas Sour, West Texas Intermediate, Light WTI, and condensate, according to an Enterprise presentation. Despite the apparent delays on the line, Enterprise still expects an in-service date of Q4 2017, according to a spokesman on June 13.
Coming down the pipe: Increasing Permian production calls for greater takeaway capacity
Bringing the line into service by the end of 2017, as Enterprise has stated, will be critical, as increasing production in the region could be constrained by inadequate takeaway capacity. The Permian remains the engine for U.S. production growth, despite the fact that rig counts have leveled off in the last six weeks, with the current active rig count only six rigs above the 355 rigs counted in the beginning of May.
Initial production rates continue to improve, combining with higher rig counts to deliver an estimated 625,000 bpd of production growth from exit 2016 to exit 2017, which will be a record one-year of oil production growth for the basin. Many operators are shifting to full field development in the Permian and targeting more wells per section in concentrated focus areas. Pad drilling is expanding, and efficiency gains in both well and rig productivity are continuing at a rapid pace, which is helping to drive this growth.
However, transportation constraints could pose downside risk to the growth expectations in the Permian. On the oil outbound transportation side, the expansion of Magellan’s Colorado City, TX,-to-Houston BridgeTex pipeline is now in service, which added additional compression to the line and increased the capacity by 100,000 bpd to 400,000 bpd. The expansion of Plains’ McCamey, TX,-to-Gardendale, TX, Cactus pipeline is expected in Q3 2017, before Enterprise’s Midland-to-Sealy line is completed.
From a production perspective, the market is anticipating that the Midland-to-Sealy pipeline will come online at the end of this year, and it is critical that it does. Without the addition of the Midland-to-Sealy pipeline, Permian production flows could max out takeaway capacity (including outbound pipelines and local refineries) by the end of 2017, according to Genscape. If Enterprise’s new pipeline is delayed into 2018, it could significantly impact the Midland-WTI spread, though rail shipments could help pick up the slack.
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