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What an Oil Boom in West Texas Means for Transport of Crude

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Although the market price of West Texas Intermediate Crude Oil (WTI) has fallen significantly since earlier this year – especially since highs in early to mid-summer – producers are faced with an ongoing problem: production is currently exceeding transport capabilities. This is primarily due to the fact that current pipeline capacity exceeds daily production. The energy research firm Woods Mackenzie estimated in September [2018] that production in the Permian Basin was at 3.6 million barrels per day, while pipeline capacity from the region to refineries and export terminals on the Gulf Coast was only 3.5 million barrels per day.

Another driver to this issue is that crude oil typically sells for several dollars more per barrel outside of West Texas due to increasing inventories. Consequently, producers are looking to move their products to more lucrative markets.

Shortage of pipeline capacity affects both production of crude oil and natural gas. Although several large companies, including Kinder Morgan and Phillips 66 Partners (headquartered in Houston) are currently working to complete ongoing and planned pipeline projects, operations will not begin until sometime in 2019 at the earliest. These gaps in pipeline capacity may also be contributing – at least in part – to the recent decline in prices. There has also been an increasing number of wells being put into production, drilled but not completed (DUCs). Even in July of this year, the Department of Energy estimated that 3400 DUC wells in the Permian Basin alone – an 80% increase from the same period in 2017. That number has likely increased even more in the second half of the year.

Consequently, producers are looking to trucking and rail companies to get their products to the markets and refineries along the Gulf Coast. While several huge pipeline projects are being planned (EPIC Crude Oil Pipeline, Gray Oak Pipeline, and Cactus 2 Pipeline) for completion by the end of 2019, there are ongoing environmental concerns and outcry of public opinion regarding eminent domain and construction of these pipelines in certain locations which may delay their completion.

Chorus Logistics can provide the services you need. We are a bulk commodities transportation system (CTS) that can adapt to corporate, supplier, customer and regulator needs. Contact us today for a free demonstration of our software and learn more about our capabilities.

 

Resources:

Druzin R. Oil boom in West Texas means challenges to transport crude. Longview News-Journal [online]. 8 Sep 2018 [accessed 20 Dec 2018]. https://www.news-journal.com/news/business/oil-boom-in-west-texas-means-challenges-to-transport-crude/article_0b7a43f8-b07b-11e8-83be-bbbcfb70cc0d.html

Vela E. Locals voice pipeline concerns. Fredericksburg Standard-Radio Post. 19 Dec 2018.

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