Oil production levels have fallen this year, even in West Texas’ fertile Permian Basin.
But the slowdown has given pipeline operators there the chance to catch up after years of overwhelming oil volumes, according to a Morningstar report released Monday. Pipeline companies have added more than 700,000 barrels per day of new capacity over the past 18 months, oil research director Sandy Fielden said in the report.
Permian production rose from about 1 million barrels per day in 2011 to about 2 million at the end of 2015, according to the U.S. Energy Information Administration. But since January, volumes have dipped by several thousand barrels per day.
Before prices began to crash in fall 2014, Permian drillers produced more crude than pipelines could handle, Fielden said in his report, leading to congestion getting oil to Midwest and Gulf Coast refineries.
Since 2015, however, several companies have built new pipelines or added capacity to existing lines: a Magellan Midstream Partners and Plains All American joint venture added 300,000 barrels per day in capacity from Colorado City, Texas, to Houston. Plains added almost 100,000 barrels per day from McCamey to Gardendale in South Texas’ Eagle Ford. Sunoco Logistics added 200,000 barrels per day from Garden City to Port Arthur, and 200,000 barrels from Midland to Garden City.
“These new projects not only relieve existing congestion,” Fielden wrote, “but have also created a significant overcapacity out of the region.”
Pipeline companies also have added several smaller lines, the report says, linking well heads to mainline hubs. Fielden says those lines should eventually reduce costs for oil producers, replacing “costly trucking fees with lower pipeline tariffs.”