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Bloomberg
It’s gone from a dearth to a glut of oil pipeline projects competing to serve slowing production growth in the Permian Basin.
Five new oil pipelines are set to open in the Permian Basin through 2021, expanding a gap between production and takeaway capacity that’s already forcing companies to cut fees and could mean lower profits and cutthroat competition ahead.
Producers in the West Texas and New Mexico oilfield are pumping about 4.72 million barrels a day, according to Rystad Energy AS. That compares with nearly 6 million barrels of pipeline capacity that could rise by about 3.5 million barrels in the next two years as planned new conduits come online.
Most of those planned projects were announced when the Permian was posting annual growth rates in excess of 1 million barrels a day. Now, some analysts see yearly growth slowing to as little as 650,000 barrels a day, with older wells producing less and oil companies preparing to curb spending this year to boost investor returns.
Competition will heat up particularly among pipeline companies seeking to renew long-term shipper contracts that are set to expire, including those seeking to proceed with new pipeline projects, said Sandy Fielden, director of research for Morningstar.
Adding to this, the difference between the price of crude on the coast compared with Midland in the Permian has plummeted in the last year, making it more difficult for shippers to make money after paying the pipeline fees.