Pipelines adding capacity to get oil from West Texas to Houston market

Fuel Fix:
Magellan Midstream Partners isn’t a household name in Houston, but the Tulsa business is growing as one of the top players in funneling crude from the suddenly booming Permian Basin to Houston-area storage tanks and Gulf Coast refineries.

Now that the oil sector is rebounding in West Texas, there’s a renewed rush to build out pipeline systems from the Midland region to Houston, where the oil can move to refiners, processing plants or other continents as the crude export market picks up, probably in 2018. More storage hubs and export terminals along the Houston Ship Channel are getting built by Magellan and others.

The only business with a larger terminal and storage hub in Houston is the local company, Enterprise Products Partners, which recently opted to build its own pipeline network to maximum capacity from Midland to its ECHO — Enterprise Crude Houston — terminal. Enterprise, Magellan and other companies are competing in every aspect of the transportation, storage and processing of the crude in order to reap as much profit and market share as possible, said Sandy Fielden, Morningstar’s director of oil and products research.

“It’s getting crowded and everyone is jockeying,” Fielden said. “The pipeline companies are trying to control as much of the volume as they can from the wellhead all the way to the refinery or even the export dock.”

U.S. oil production peaked in mid-2015 at 9.6 million barrels a day and fell to 8.4 million barrels this past July. As oil prices and drilling activity have risen again, oil production has rebounded to about 9 million barrels and growing. Drilling rigs are still being added to West Texas fields at a steady pace; the Permian is home to more than half the nation’s active drilling rigs.

READ: Oil workers who stayed help Midland bounce back

A good share of that production is likely headed for export, since more oil is coming to the Gulf Coast than the region’s 10 refineries can process, analysts said. Congress lifted the 40-year ban on crude exports at the end of 2015, but the timing coincided with a global oil glut that only now is getting slowly reduced.
Refiners along the Gulf Coast need to find a way to use the light crude being produced if the US plans to reduce imports.   I have seen little information on such an effort to date.

The pipeline infrastructure is sorely needed to get this oil to market or export.  It is much more efficient than moving it by rail.


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