Genscape : Regulatory Data Provides Full Permian View, Midland-to-Sealy Addition Coming Soon

With additional Permian-outbound pipeline capacity announced seemingly every month, it is worth exploring each artery out of the production region. Knowing the capacities of outbound pipelines isn't enough information to grasp a true sense of what's going on in the Permian and where bottlenecks might exist. It is essential to understand that pipeline behavior out of the Permian is not only a function of production. Trunk lines are also beholden to their associated gathering systems and the production pads further upstream, each with their own characteristics and, more importantly, limitations.

Genscape Mid-Continent and Gulf Coast pipeline subscribers can now get a comprehensive view of how much crude oil is moving out of the Permian via pipeline, and where spare capacity might exist. Recently, Genscape added the 'Basin-Colorado City to Wichita Falls' and 'Centurion North-Slaughter to Childress' pipelines to our historical regulatory data sets. On January 19, Genscape plans to add near-real-time flow for Enterprise's Midland-to-Sealy pipeline to complete the picture.

Permian Production Growth Invokes Visibility into Pipeline Operations

The Permian remains as the U.S. production growth engine, despite the fact that rig counts have leveled off in the last six months, with the current active rig count, as of December 2017, only 24 rigs above the June 2017 rig count of 380 rigs. That is compared to a low of 130 rigs in 2016.

Initial production rates continue to improve, combined with higher rig counts to deliver an estimated 902,000 bpd production growth from exit 2017 to exit 2018, which will be a record one-year of oil production growth for the basin. This is on top of nearly 732,000 bpd of growth exit 2016 to exit 2017, breaking the prior record, according to Genscape's U.S. Crude Oil Production forecast. Many operators are shifting to full field development in the Permian, and are targeting more wells per section in concentrated areas. Pad drilling is expanding and efficiency gains in both well and rig productivity are continuing at a rapid pace, which is helping to drive this growth.

However, even as production in the Permian soared to more than 2.5mn bpd in August 2017, according to Genscape estimates, outbound pipeline flow has not always increased in lock step, suggesting that production has the potential to outpace pipeline capacity quicker than one might think. There are a number of reasons why that might be the case, whether it be maintenance, freeze offs, a lack of adequate gathering system or shuttle pipeline connectivity or a particularly potent hurricane season. Understanding individual pipeline behavior not only gives you better insight as to what's flowing where, but what companies might be winning out in terms of flow rates compared to their regional peers.

Regulatory and Proprietary Datasets Provide Clarity on Key Texas Supply Chain Dynamics

Despite increasing production, there are several Permian-outbound pipelines that are not reaching capacity and have decreased since April 2017. Deliveries out of Slaughter, TX, on Centurion's 170,000 bpd pipeline, for example, averaged more than 150,000 bpd in April, but had decreased to around 120,000 bpd in August. Flows on the 400,000 bpd Permian Express Partners system (Permian Express 2 / Permian Express 3 / PELA), all now under the Energy Transfer-Exxon Mobil JV, have collectively decreased from near 258,000 bpd in April to around 211,000 bpd in August. Even in July 2017, pre-Hurricane Harvey, the Permian Express Partners system was averaging just 225,000 bpd, according to regulatory data collected from the Texas Railroad Commission (TxRRC).

Other outbound pipelines have fared much better. Plains All American's 450,000 bpd Basin pipeline, having the advantage of Cushing, OK, as a delivery point, flowed above nameplate capacity at more than 470,000 bpd out of Colorado City, TX, in August 2017. Regulatory data shows that portion of the pipeline can extend even beyond that, having averaged above 500,000 bpd in May 2014. However, flows on that line dipped considerably in September 2017, primarily as a result of decreased demand at Wichita Falls, TX.

By leveraging Genscape's newly available regulatory data, one can see that actual Permian outbound pipeline flow toes a close line with production, but can at times diverge quite significantly. This has obvious but real implications for the West Texas Intermediate (WTI)-Midland spread to WTI-Cushing. In 2014, when production outstripped even nameplate capacity, the spread reached -$12/bbl. As additional capacity was added and outbound pipeline flow caught up to production, WTI-Midland began to trade at a premium or parity to WTI-Cushing through much of 2015 and 2016.

As production has gained pace in 2017, pipeline capacity is once again becoming constrained. While added capacity to the Gulf Coast - with access to WTI- Houston and Louisiana Light Sweet (LLS) pricing - has helped keep the spread tighter to WTI, tighter pipeline capacity is again weakening Midland prices.

Genscape's Gulf Coast near-real-time proprietary pipeline data can give insight as to where potential bottlenecks are popping up. Magellan's 275,000 bpd Crane, TX,-to-Houston Longhorn pipeline, for example, was flowing at or even slightly above nameplate capacity in November and December 2018. The company's 400,000 bpd Colorado City, TX,-to-Houston BridgeTex pipeline, on the other hand, was operating well below capacity at near 260,000 bpd in December 2018, suggesting that the pipeline may have operational or upstream limitations preventing it from reaching its top-rated capacity.

It will be paramount over the course of the next 6-12 months for market participants to understand what utilization rates newly added pipeline capacity can actually achieve, namely Enterprise's newly operational Midland-to-Sealy pipeline. There are growing questions as to what the new pipeline can handle in the near term with capacity increasing from 300,000 bpd in December 2017 to its projected 450,000 bpd nameplate capacity in Q2 2018. Genscape will be adding the Midland-to-Sealy pipeline to our Gulf Coast pipeline products on January 19 in pursuit of answering that question. We will also release confirmatory regulatory data, once available via the TxRRC.

Combining Genscape's proprietary data with reported regulatory data can offer an unprecedented view of a basin for which transparency has typically been hard to come by. As production continues its upward trajectory and pipeline operators jockey to cash in on anticipated transportation needs, early and accurate data will be pivotal in understanding the dynamics behind the increasingly complicated distribution network out of West Texas.

Timely flow data and accurate information about regional oil infrastructure have become essential for all market participants. Genscape's U.S. Gulf Coast Pipelines Service shares timely, proprietary insight into crude oil flows across the region for over 3.6mn bpd of capacity. To learn more, or to request a trial please click here.

Genscape's Mid-Continent Pipeline Service provides visibility into what's driving the U.S. crude oil markets, including insight into critical pipelines supplying and servicing key storage hubs, production basins, and refineries. The report includes alerts about major pipeline shutdowns, start-ups, and flow changes. To learn more, or to request a free trial of Genscape's Mid-Continent Pipeline Service, please click here.

Genscape's U.S. Crude Oil Production Forecast shares unique, proprietary data for over 20,000 individual wells, aggregated by basin and crude quality. The report provides exceptional accuracy and advanced notice of market fundamentals. To learn more, or to request a trial of Genscape's U.S. Crude Oil Production Forecast, please click here.