Permian Basin production
Permian Basin crude oil production has seen a dramatic rise in recent years. According to the EIA’s (Energy Information Administration) Drilling Productivity Report for July 2018, the projected Permian Basin production for August 2018 is 3.4 million bpd (barrels per day) compared to 2.5 million bpd in August 2017. However, midstream companies couldn’t keep up with the steep rise in demand to transport oil out of the region, resulting in significant takeaway capacity constraints.
A rise in price differentials
The takeaway capacity constraints in the Permian Basin resulted in Midland crude oil trading at a discount compared to the WTI Cushing crude oil. The WTI Cushing-WTI Midland spread rose to more than $17 per barrel on July 26. Midstream companies are focusing on developing takeaway capacity in the region. Rising production means more demand for transport capacity, which is benefitting the pipeline operators in the region.
Plains All American Pipeline’s (PAA) proposed Cactus II project plans to add up to 670 mb/d (thousand barrels per day) to the Permian Basin takeaway capacity. Other players that have announced projects in the region include Enterprise Products Partners (EPD) and Energy Transfer Partners (ETP).
Along with oil transport capacity constraints, the Permian region is also falling short of natural gas transport capacity. In June, Kinder Morgan (KMI) announced a natural gas pipeline from the Permian Basin to the Texas Gulf Coast. The Permian Highway Pipeline or PHP project will be jointly developed by Kinder Morgan, EagleClaw Midstream Ventures, and Apache (APA).
Next, we’ll discuss Plains All American’s Q2 earnings estimates.