The web of crude-related infrastructure in the Permian Basin continues to expand as West Texas regional production climbs to record levels. Several midstream companies are building out gathering systems which will carry crude barrels from production regions to major West Texas storage hubs, such as Midland, TX. The new pipelines and associated storage tanks will accommodate increased output from the top production play in the United States and provide connectivity to downstream markets at Cushing, OK, and the U.S. Gulf Coast.
Production Rebounds to Record High
Crude production flows in the Permian reached a record high of 1.98mn bpd for week ending August 26, surpassing the previous high from week ending February 5, according to Genscape. Production in the region has been steadily climbing since at least 2010, but plateaued in 2015 as crude prices plummeted. A recovery in prices since February has rekindled the building pattern in production.
The Permian Basin is one of the most cost-effective oil plays in the United States, with relatively low breakeven prices averaging around $40 a barrel. Therefore, production in the Permian has been particularly responsive to the improving market environment. If crude prices stay above $40 a barrel, a trend that has persisted since early August, flows are likely to continue growing out of the West Texas region.
Permian production is forecast to increase 800,000 bpd over the next two years to 2.7 million bpd in September 2018, according to Genscape. Rig counts in the region have also been on the rise as production becomes more economical. Permian rigs increased by 79 to 204 rigs between May 13 and September 16, the highest count so far in 2016.
What Comes Up, Must Go Down: Moving Barrels from the Well to Downstream Markets
Increased production in recent years has increased demand for infrastructure to accommodate the additional barrels leaving West Texas. Several pipelines have been built or reversed from the Permian Basin to transport crude directly to Gulf Coast markets. Previously, barrels had to flow 500 miles northeast to Cushing before backpedaling southward to reach the Texas coast. The Gulf Coast contains the largest refining complex in the world, as well as marine docks which provide connectivity to international markets.
In 2013, Magellan reversed its 275,000 bpd Longhorn Pipeline to deliver crude to Houston from delivery points in Crane, TX, and Barnhart, TX. In 2014, Magellan completed construction on its 300,000 bpd Colorado City, TX,-to-Houston BridgeTex Pipeline.
In 2015, Plains All American’s 330,000 bpd McCamey, TX,-to-Gardendale, TX, Cactus Pipeline became operational. From Gardendale, Cactus Pipeline has connectivity to Corpus Christi, TX. The same year, Sunoco completed construction on its 230,000 bpd Colorado City, TX,-to-Corsicana, TX, Permian Express II Pipeline.
Genscape monitors the connected storage for these pipelines in Colorado City, Crane, McCamey, and Houston.
Midstream investments are being backed by increased production and the need for greater pipeline connectivity to downstream markets. Several pipeline systems are being constructed and expanded to gather crude from production sites and deliver it to West Texas storage hubs. Expected upcoming expansions include Medallion’s Wolfcamp Gathering System, Oryx’s Trans Permian Pipeline System, Rangeland’s RIO System, EnLink’s Greater Chickadee Gathering System, and Navigator’s Big Spring Gateway System. This trend will likely continue as companies cash in on infrastructure opportunities caused by climbing supply.
Many companies are also investing in the growing demand for storage tanks in the region. In 2016, crude storage capacity increased nearly three million bbls at Genscape-monitored West Texas locations (Midland, Colorado City, Crane, McCamey, Odessa, Wichita Falls, and Wink). Since 2010, storage capacity at Midland increased 3.6 million barrels to 9.2 million barrels, with another 800,000 barrels under construction.
In the past two years, Genscape has added several owners to its coverage of West Texas storage terminals. Several of these have been smaller-name midstream companies. Storage owners added since 2014 include Genesis, Magellan, Medallion, Navigator, Oryx, Rangeland, SunVit, and Western Refining. Below are highlights from a small portion of the gathering systems being built in the Permian region.
Medallion
Medallion’s Wolfcamp Connector Crude Oil Gathering System is a 456 mile system that stretches across Mitchell, Howard, Glasscock, Reagan, Upton, and Midland counties. Initial operations began in October 2014, but new expansions to the system are being completed. Earlier this year, Medallion announced the successful close of an open season for a new pipeline that connects the system to a new terminal at Crane, TX.
The Crane Extension connects Medallion’s existing Midkiff Station to Magellan’s 275,000 bpd Crane-to-Houston Longhorn Pipeline via a 100,000 bpd bi-directional pipeline. The Wolfcamp gathering system currently feeds into the Colorado City Hub, and Medallion has plans to provide connectivity to Midland in 2016. Genscape monitors the Medallion storage terminals at Crane and Colorado City.
Oryx
Oryx recently completed the first phase of construction on its Trans Permian Pipeline System, a gathering system that will provide transportation from the southern Delaware Basin to markets at Crane and Midland. The system will have an initial capacity of 160,000 bpd and can potentially be expanded to 220,000 bpd based on customer demand.
The system will provide inter connectivity to Magellan’s Longhorn Pipeline at Crane and Enterprise’s storage terminal at Midland. Genscape monitors the Oryx Crane terminal, which has one operational tank and two more in the early stages of construction.
Rangeland
Rangeland’s RIO System is designed to transport crude production from the Delaware Basin. The system includes terminals in Loving, NM, the Texas-New Mexico border, and Midland. The company recently brought into service its 125,000 bpd RIO Pipeline, which will carry crude 110 miles from the State Line terminal to the Midland terminal. From there, market participants will have access to Cushing, East Texas, and the Gulf Coast via the Plains Midland terminal.
In a press release issued on September 7, Rangeland CEO, Chris Keene said, "the Delaware Basin is the most active and prolific basin in the United States, and we don’t expect that to change in the foreseeable future. ...For this reason Rangeland has placed a very high priority on providing takeaway service and optionality to all customers active in the basin.
Genscape’s U.S. Gulf Coast Pipelines Reports provide real-time, proprietary insight into crude oil flows across the U.S. Gulf Coast region for over 3.6 million bpd of capacity. The reports provide flow data and insight into new infrastructure developments in the region. To learn more, or to request a free trial, please click here.
Genscape's Midland-Basin Crude Oil Storage Report provides granular crude oil storage measurements for key terminals connecting Permian Basin production to the Gulf Coast and Cushing, two days before EIA estimates. To learn more, or to request a free trial, please click here.
Find the most detailed, accurate five-year U.S. crude oil production forecast in the industry with Genscape's U.S. Crude Oil Production Forecast. Receive analysis using proprietary data from over 20,000 individual wells, aggregated by basin and crude quality, and adjusted weekly to forward curve. To learn more, or to request a free trial, please click here.