Too Many Pipelines, Too Little Demand

 In Mexico, Space, MINT, N11

Just two years ago, in response to boom­ing domes­tic demand and insuf­fi­cient pipeline capac­i­ty to move the oil to market, pipeline oper­a­tors began build­ing more pipelines in the pro­lif­ic Permian Basin of Texas and New Mexico, capa­ble of trans­port­ing up to seven mbd of fracked shale oil.  Today, in the wake of the Covic pan­dem­ic and the cor­re­spond­ing pre­cip­i­tous drop in demand, the area has an abun­dance of pipelines — a wel­come change for shale oil com­pa­nies but one now squeez­ing pipeline oper­a­tors’ prof­its.

“We are going to need sig­nif­i­cant con­sol­i­da­tion in the mid­stream space over­all, and par­tic­u­lar­ly in these basins where the over­sup­ply is as dra­mat­ic as it is,” Tyler Rosenlicht, a port­fo­lio man­ag­er at invest­ment firm Cohen & Steers Inc., said of the pipeline com­pa­nies.

According to East Daley Capital Advisors, an energy data firm, oil fields often fluc­tu­ate between not having enough pipelines to move their crude to market and having too many. But the mis­match between pipeline space and oil output in the Permian is par­tic­u­lar­ly extreme. As of September, large Permian con­duits and local refiner­ies could absorb rough­ly 7.3 mil­lion bar­rels of oil a day.

The Wall Street Journal reports that even with­out the detri­men­tal effects of Covid 19 on the market there would likely have been too many pipelines, since pro­duc­ers already were begin­ning to slow pro­duc­tion as investors pres­sured them to pri­or­i­tize returns over growth.

Last year, pipeline firms Energy Transfer and Epic Midstream Holdings LP respond­ed by low­er­ing some of the rates they charge to ship oil, accord­ing to East Daley. Companies also have dis­cussed revers­ing the direc­tion oil flows on their pipes to send more oil to Gulf Coast export mar­kets, or con­vert­ing oil con­duits to ones that carry nat­ur­al gas or nat­ur­al-gas liq­uids, accord­ing to people famil­iar with the matter.

Enterprise Products Partners, for exam­ple, has con­sid­ered switch­ing one of its Texas pipelines back to han­dling nat­ur­al-gas liq­uids, after having con­vert­ed it to crude early last year to sat­is­fy the crush of Permian demand. A spokesman said Monday that the com­pa­ny had yet to decide whether to pursue the con­ver­sion.

Pipeline Journal source|articles

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