Pipeline additions boost Permian Basin prices

Apr 04, 2019 9:28 AM

Houston Chronicle | Marissa Luck | March 27, 2019

Permian Basin crude prices have been depressed for months because there haven't been enough pipelines to take all the West Texas crude to the Gulf Coast. Some of those pipeline constraints are now easing, and prices for Permian crude are finally starting to gain some ground, an analysis from the U.S. Energy Information Administration suggests.

Permian Basin prices are starting to catch up to crude prices at Houston and Cushing, Okla., thanks to recent pipeline additions that make it easier to get crude out of West Texas. The difference between crude oil prices from the Permian Basin and crude oil prices at the Houston and Cushing aggregation points started to narrow in September and continued to narrow in late January.

An extension to the Sunrise Pipeline added an estimated 120,000 barrels per of takeaway capacity from the Permian region earlier this year, boosting pipeline capacity to Cushing, the EIA said. Another pipeline delivering natural gas liquids from the Permian to the Gulf Coast, the Seminole-Red pipeline, was repurposed to deliver crude oil. Seminole-Red is expected to be fully operational by April, adding an estimated 200,000 barrels a day of takeaway capacity.

Although Permian production is expected to grow, the additional pipelines will prevent Permian prices from falling to the same steep discounts that occurred in second and third quarters of 2018, the EIA said.

However, while West Texas Intermediate Midland prices are trading similar to WTI Cushing prices now, they are still roughly $7 lower per barrel than Houston prices. That is less than the discount seen in the middle of 2018, but still suggests the region faces some takeaway constraints in shipping Permian crude oil to the U.S. Gulf Coast.