Midstream takeaway capacity
As production in the Permian increases, pipeline capacity should become more crucial for Permian producers.
According to a report by BTU Analytics, Houston is a major epicenter of the US crude export market. However, the Houston Ship Channel is also a large center for moving other products besides crude oil. Consequently, there could be some concern concerning congestion in the Houston Ship Channel.
According to BTU, this concern could be one of the reasons why a large portion of Permian pipeline projects are proposed in Corpus Christi. The report noted that Corpus Christi is an announced destination for over 65% of upcoming Permian oil pipeline projects.
Key Permian projects
Several pipelines have come online to accommodate rising Permian production in recent months, including Magellan Midstream Partners (MMP) and Plains All American Pipeline’s (PAA) 50-50 joint-venture BridgeTex pipeline.
In December 2017, Phillips 66 (PSX) and Enbridge (ENB) announced open season for the Gray Oak Pipeline, which is expected to transport crude oil from the Permian Basin to the Texas Gulf Coast. The pipeline is expected to have an initial capacity of 385,000 barrels per day and be placed in service during 2H 2019.
Increasing takeaway capacity should, therefore, incentivize Permian producers to drill in the Permian Basin. Increasing crude oil prices should also benefit Permian producers.
In the next part of this series, we’ll discuss crude oil price forecasts.