Pipelines Save Permian | Russell T. Rudy Energy LLC
The Permian Basin of West Texas and Southeastern New Mexico has seen its share of ups and downs over its long history dating back to the 1920’s. “Rigzone” reports that production from the area the size of the state of South Dakota peaked in 1973 at 2 million barrels of oil per day (bopd), dropped to half that level at the turn of the century, only to rebound to former productivity during the shale revolution.
However, the infrastructure did not keep up with surging production. Local refining and pipeline capacity could only accommodate 1.6 million bopd. With an oversupply of approximately 400,000 bopd, Permian operators were faced with either shutting in production or selling to buyers who would have to ship via expensive trucks and trains to their refineries on the Gulf Coast. To offset this added cost, Permian crude was selling at discounts of more than $20 per barrel to WTI, the domestic benchmark price.
Fortunately, Magellan Midstream Partners, Plains All American Pipeline and Sunoco Logistics Partners have added more than 750,000 bopd of new capacity. Now, with direct access to Gulf Coast refineries, Permian crude is selling at a premium of about 78 cents per barrel to WTI. Unfortunately, WTI is only about half what it was at its peak in 2015. This general price drop has resulted in other major shale basins such as the Eagle Ford in South Texas, and the Bakken in North Dakota, reducing production by 10% and 5% respectively.
Without the new pipeline capacity, Permian production would be selling at the previous discount to WTI and much of it would be uneconomic to produce. However, by virtue of the recently added throughput and premium to WTI, production in the Permian Basin is still growing, but admittedly at a slower rate than was previously the case.
To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=139870&utm .
