Analysts predict an increase in crude oil flow from the US shale field to export hubs located on the Gulf Coast to the pre-pandemic level, effectively ending the desperation of some Texas oil pipeline operators.
The prediction comes after the pandemic halted most of the pipeline construction that had increased crude oil export from West Texas to the US Gulf Coast by about 2.5 million barrels per day. The collapse of the oil prices in early 2020 forced the overcapacity pipeline operators to offer cut-rate deals and better terms.
According to the analysis, oil production in the Permian basin, located in New Mexico and West Texas, is predicted to reach 5.7 million barrels per day in 2023, with crude oil selling at $100 a barrel.
However, the production would still be below the pipeline’s capacity of about 6.6 million BPD, according to East Daley Capital, an energy research firm that keenly monitors the companies’ outputs.
Despite the anticipated drop in oil prices at the Coast, the gap between the price at the Coast and the point of origin in Midland, Texas, has begun to widen after contracting began in early March 2020, signaling a looming hike in the oil shipping cost.
As Permian production rises, Plains All American’s Willie Chiang expects the spare capacity to begin tightening as the water tariffs return to normal.
Longhorn oil operators Magellan Midstream Partners LP told investors that the rising Permian output might force it to revisit its earlier plans of converting its Permian to Gulf Coast pipeline to transport natural gas or products.
According to East Daley Capital, the use of Permian to Gulf Coast pipelines, which was around 70% in April, is expected to rise to about 77% by October 2022 and to 80% by the end of the year.
Additionally, Baker Hughes disclosed that oil rigs in the Permian have risen by about 14% this year as more firms also confirm their plans to raise capital spending for the second year running to boost production by adding more rigs.