The Permian Could Soon Have Too Much Pipeline Capacity. The Permian could soon have too much pipeline capacity, a glut that will present problems for midstream companies. You could be forgiven for doing a double take on that sentence. There has been a lot of attention paid to the pipeline woes in West Texas, but because of the unfolding shortage, not a surplus. The flood of supply over the past few years suddenly ran up against a wall of fixed takeaway capacity in 2018. The result has been maxed out pipes, painful discounts for crude in Midland and concerns about a production slowdown sweeping over the basin. Now there is a rush to build more pipelines to load up all of that crude coming out of the ground. But with several projects in the works and set to come online essentially at the same time – late 2019 and early 2020 – the Permian could see a massive increase in pipeline capacity, hitting the market in lump-sum fashion at the same time. The Permian has around 3.1 million barrels per day (mb/d) of takeaway and local refining capacity, plus some 300,000 bpd of local refining capacity. The Permian is producing just around 3.4 mb/d, which means the pipelines are nearly full or already at capacity. Production is expected to continue to rise over the next year, although pipeline constraints could curtail output by around 200,000 to 300,000 bpd, Barclays said a few weeks ago. Still, the EIA sees the region adding around 600,000 bpd in 2019, which will be difficult for the midstream sector to digest. Read more at SeekingAlpha.com
There is also an extensive article about too much water being produced by the oil wells and the strains that that dirty water is placing on production of oil and disposal resources for the water. Forbes I think.
Written Aug. 29, 2018
There’s a terrible quote that often comes to my mind.
It goes, “Thirty years from now there will be a huge amount of oil — and no buyers. Oil will be left in the ground.”
No buyers, huh?
These words came from an interview with a former Saudi oil minister in 2000. Sheikh Ahmed Zaki Yamani might’ve been on to something. His thinking was that new discoveries, new technology, and strong E&P activity will crash prices within five years… and it looks like he was a few years off of predicting the U.S. shale boom.
Yet this former oil minister went beyond that. He also predicted that alternative technology like fuel cells would cut gasoline consumption by 100% by 2010.
But did he go too far?
I believe my colleague Luke Burgess hit the nail on the head earlier this week when he told you that nothing happens without energy.
Allow me to reiterate that: nothing!
Now, when it comes to fueling the world’s energy needs, most investors I’ve talked to hold the same opinion, more or less: oil is on its way out.
I know the growth stats aren’t as sexy for crude as they are for some of today’s renewable sources.
After all, oil consumption in the U.S. has been relatively flat for the last 30 years.
Click Chart to Enlarge
Truth is, U.S. oil consumption is projected to decline slightly over the next few decades.
And that, dear reader, makes me even more bullish on the U.S. energy sector.
Go Deep or Go Home
I honestly don’t think the average person understands how much crude the world consumes.
We’re talking about 100 million barrels every single day.
If the average barrel holds 42 U.S. gallons of crude, it’ll weigh roughly 300 pounds. In total, the world guzzles approximately 150,000 TONS of black gold.
That’s the equivalent of about 666 Statues of Liberty.
Every. Day.
The concern isn’t over demand growth in the United States; it’s from countries like China and India. Oil demand in the Asia Pacific has skyrocketed since the 1980s and has grown to well over 30 million barrels per day.
To put that into perspective, the U.S. consumes about 20 million barrels per day.
And if there’s one thing we can count on, it’s that the U.S. will find a way to tap into international energy markets.
Does anyone else remember what happened for our LNG exporters a couple years ago?
One of the biggest issues was how U.S. LNG could reach growing demand in Asia. The supertankers that shipped LNG were simply too large to pass through the Panama Canal.
What was the solution?
All it took was a little work and about $5 billion to widen the canal.
Last year, our LNG exports increased 278% over 2016’s volumes.
And thanks to that key investment in the Panama Canal, U.S. LNG exports to China increased five-fold!
We shipped 103 billion cubic feet last year to China, and all of it came from the Sabine Pass terminal in Louisiana.
Now it’s oil’s turn…
It’s Payback Time for Uncle Sam!
Thousands of Americans are cashing in on a little-known loophole to pocket an extra $5,794, $11,060, and even $16,281…
I Love it When a Plan Comes Together… But What’s Next?
More and more U.S. crude is flowing out of the Gulf of Mexico, and I can’t stress enough how early it is in the export game right now.
Take a look for yourself:
Click Chart to Enlarge
The surge at the tail end of the chart took place the moment Congress lifted the 40-year ban on U.S. oil exports. It took less than three years for companies to boost our oil exports to 2 million barrels per day last May.
The real question, however, is if you noticed the hidden shale gem found right next to this burgeoning bastion of oil exports.
You can see the Eagle Ford story taking shape, too, can’t you?
According to the numbers at the EIA, more than 1.4 million barrels of oil are extracted from this shale play in South Texas every day.
For the record, it’s our second-largest oil-producing region in the United States.
It’s bigger than the Bakken.
And it’s closer to those export terminals along the Gulf of Mexico than the Permian Basin.
This last point may be the reason BP just shelled out $10.5 billion for another shot at a shale fortune.
Over the next few weeks, we’ll walk through the best drillers in the Eagle Ford, as well as a few little-known drillers that are making big moves there.
Until next time,
Keith Kohl
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See what I mean about not being able to make up their feeble minds? But, I believe the demand for
oil, natural gas, and natural gas liquids will continue to escalate until someone kicks off another global
war, and hopefully that is still some years away.
