The Permian is back, bigger and badder than ever. Producer economics are the best in the U.S.  Half of all rigs drilling for crude oil in the U.S. are in the Permian. It is the fastest growing basin from an output perspective and already contributes 2.2 MMb/d to the nation’s oil production, or about 25% of Lower 48 crude volumes. But there are potential problems looming on the Permian horizon. There is simply not enough midstream infrastructure to accommodate this astronomical growth.

How bad could Permian takeaway capacity constraints become over the next few years? Will projects that have been announced take care of the problems before they happen? What happens if crude oil prices increase to levels that stimulate even more drilling and consequently result in even faster production growth?

To fully answer these questions for each of the three energy commodity groups––crude oil, natural gas and NGLs––it is important to develop a comprehensive understanding of the infrastructure that is in place today, the current utilization rates of that infrastructure, the expected rate of production growth, and the potential impact of proposed new takeaway capacity projects in the region. This RBN Drill Down Report is the first in a series of Permian assessments; we start with crude oil pipeline capacity and utilization. In it, we examine each of the nine pipelines currently providing crude oil pipeline takeaway out of the Permian: Basin, Centurion, West Texas Gulf, Amdel, Longhorn, BridgeTex, Cactus, Permian Express II and PELA. Our analysis includes a dossier on the owner, origin, destination, capacity, tariff rate, and other details about each system; a map of each pipeline; our assessment of current pipeline capacity utilization; and our projection of future capacity utilization of each pipe.

With this analysis as a foundation, we then review potential capacity additions from seven expansion and greenfield projects: BridgeTex Expansion, Cactus Expansion, Permian Express II Expansion, Midland-to-Sealy, Basin Expansion, EPIC and South Texas Gateway. As with existing pipes, we provide details on each project and a map of the project’s route.

Key take-aways from the report include:

  • Responding to attractive producer economics and robust drilling programs, Permian production for all three commodity groups is growing rapidly, renewing the possibility of takeaway constraints and wide negative differentials for local commodity prices.
  • Several pipeline projects are being developed to relieve pending capacity constraints; the questions are whether they will be enough, and if they will be completed in time.
  • In the crude oil sector, projects could add 1.8 to 2.0 MMb/d- likely more than enough to provide adequate takeaway capacity for the next five years.
  • The quandary for individual producers is whether to make firm –– and expensive –– commitments to projects such as these, or leave that to other producers, then sit back and benefit from the constraint-clearing and de minimus price differentials that will come with the incremental takeaway capacity that other producers go out on a limb to commit to.