Exxon increases its investment in the Permian and the facilities that use the oil and gas recovered from it

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ExxonMobil and Plains All American gave the greenlight to another major pipeline in the Permian basin, which would move 1 million barrels per day (mb/d) from West Texas to the Gulf Coast.

The project, in partnership with Lotus Midstream, is another indication of the rising upstream production from the Permian. But the pipeline also came after Exxon gave a separate final investment decision on another project.

On Tuesday, the oil major said it was moving forward on a near-doubling of its Beaumont, Texas refinery, adding a 250,000-bpd crude unit that would process light sweet oil from the Permian. The facility already has the capacity to refine 365,644 bpd, and the expansion could make Exxon’s Beaumont facility the largest refinery in the country. Saudi Aramco’s Motiva Enterprises refinery in Port Arthur currently ranks in the top spot with a capacity of 603,000 bpd. Once Exxon is finished with its expansion – slated for 2022 – the Beaumont facility will have a capacity of 615,644 bpd.

Even that is only part of Exxon’s plans for the region. Last year, Exxon unveiled its “Growing the Gulf” campaign, which consisted of massive refinery expansions on the Gulf Coast, including in Baytown, Beaumont and Baton Rouge. The entire initiative included $20 billion in planned spending across 11 refining, chemical and petrochemical projects along the Gulf Coast over a 10-year period.

The refinery expansions should be viewed in the context of Exxon’s plunge into the Permian. After arriving late to the scene, ExxonMobil has quickly become one of the largest shale drillers in West Texas and New Mexico. In early 2017, Exxon spent nearly $6 billion to acquire huge tracts in the Permian, which doubled the company’s holdings in the basin.Related: Global Deepwater Oil Production To Hit New Record In 2019

A year later, Exxon announced a long-term vision, laying out an aggressive spending and drilling plan that would help the company increase production over the next decade. The plan was intended to shake the company out of its current malaise, reversing several years of stagnant output and waning faith from Wall Street.

There were a few key pillars to the long-term vision: Offshore Guyana (where Exxon, along with Hess, have made a string of major discoveries), LNG projects in Papua New Guinea and Mozambique, shale drilling in the Permian, and downstream chemical and petrochemical projects on the Gulf Coast. Obviously, the last two of those pillars – the Permian and projects on the Gulf Coast – are linked.
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Another interesting wrinkle in the refinery buildout is the unfolding global mismatch between light and heavy oil. Surging U.S. shale production is occurring alongside production curtailments from medium and heavy oil producers – Canada, Mexico, Saudi Arabia, Venezuela, Iran, etc. The result is a glut of light oil and a tighter market for heavier blends. Refiners cannot easily swap in one type of oil for another.

As those disparities work their way through the system, the market is now seeing a ballooning glut of gasoline. Lighter oils tend to produce relatively more gasoline than diesel, while heavier blends are better suited for diesel and other distillates.
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When the shale drillers first started exploiting the Permian Basin, it was curious to me that the major oil companies were laggard in joining them.  They have since become committed to the area and the resulting production.  Both Chevron and ExxonMobil are now big players in the West Texas oil fields.  It seems like a better investment than the past efforts to drill in difficult areas of Russia.  It also should have a long term impact on US energy security.  Exxon's commitment to refining the light crude if emulated by others could soon make the US energy independent.  It is a sound strategic move for the company and for the US.