Scrambling To Find Available Pipeline Capacity In The Permian -- May 21, 2018

Updates

Later, 11:47 a.m. CDT: the Dow was up 350 points at one time this morning; it is now back to about 300 points on the upside. Predictable. See note below.

Original Post

China, market, Trump: one word -- wow! Absolutely predictable. I've blogged about it before. I'll see if I can find the post. One phrase -- "China's large unemployed male population."  I started tracking the "trade war" on March 1, 2018, when Trump announced the tariffs. It was clear to me than, the trade war would go nowhere / be "won" by the US, and after 69 days considered the whole thing a bust, and moved on to the next chapter in the Trump presidency. The current chapter began May 9, 2018, when Trump "walked away" / "tore up" the Iran sanctions that had been considerably eased by the Obama administration. And included "returning" $400 million in cash overnight to Iran in unmarked currency on a military plane, the day before Trump took over as president (if I recall the timeline correctly). 

Small outages have big impact on oil prices. Link at the WSJ. Iran, Venezuela, Canada, Nigeria -- each with relatively small "outages" for various reasons have big effect when combined:

Based on the combined disruptions, analysts at Barclays project that global oil and liquids inventories will drop during the current quarter at the fastest pace since last year. [And I guess that's why folks are talking about $85-oil by July or August.]

That contrasts with the projection of the U.S. Energy Information Administration, which sees inventories having bottomed out in the first quarter at 2.812 billion barrels. They expected stockpiles to grow a bit this quarter.

Small outages take on added importance when they coincide with others in the 96 million-barrel-a-day global crude oil market. The only ones that should stick are the big ones, Iran and Venezuela—enough to keep prices high into the early summer.

After that, the high prices should help boost supply. U.S. shale oil executives may no longer restrain spending, and countries like Saudi Arabia and Russia will be tempted to fill the void left by Iran even before their supply agreement ends.

North Korea: 25 million reasons for normalizing relations with Kim Jong-Un.

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Back to the Bakken

Active rigs:

$71.61→	5/21/2018	05/21/2017	05/21/2016	05/21/2015	05/21/2014
Active Rigs	61	51	25	82	188

RBN Energy: scrambling for Permian crude takeaway options as available pipeline capacity vanishes. This has turned into quite a story. Never expected it. There is a lot of chatter on social media suggesting shale operators cannot make money on $70-oil. This article tends to suggest otherwise. The Cushing - Midland spread right now can be as much as $15/bbl.

Necessity is the mother of invention, and the desperate need to transport increasing volumes of crude oil out of the severely pipeline-constrained Permian is spurring midstream companies and logistic folks in the play to be as creative as humanly possible. With the price spread between the Permian wells and the Gulf Coast exceeding $15/bbl in recent days — and possibly headed for $20/bbl or more soon — there's a huge financial incentive to quickly provide more takeaway capacity, either on existing pipelines or by truck or rail. Are more trucks and drivers available? Is there an idle refined-products pipe that could be put back into service? Could drag-reducing agents be added to an existing crude pipeline to boost its throughput? How quickly could that mothballed crude-by-rail terminal be restarted? Today, we discuss frenzied efforts in the Permian to add incremental crude takeaway capacity of any sort — and pronto.

Both the Midland-to-Sealy and BridgeTex expansions are made possible in large part by the addition of operational enhancements in the form of drag reducing agents, or DRAs. As we explained in our “Kind of a Drag” blog series, DRAs are ultra-high molecular-weight, long-chain polymers that are injected into crude or refined-products pipelines just downstream of pumping stations. Once injected, these long polymers (think wet, flexible strands of spaghetti on a molecular level) help to minimize turbulence within the pipe. Reduced turbulence eases the flow of crude (or refined products) through a pipeline, which increases the volume of fluid that can move through the pipe within any given period of time with the same amount of pumping energy applied to the system.

Pipes that have the most turbulence are generally those that transport low-viscosity/easy-flowing refined products (like motor gasoline and diesel) or lighter crudes such as condensate or West Texas Intermediate (WTI). In other words, the use of DRAs can be well-suited for Permian takeaway pipes, which move light and superlight crudes.

DRAs have been part of the Permian crude takeaway story for at least a few years now. Back in 2013, Magellan converted its 18-to-20-inch-diameter Longhorn Pipeline back to eastbound crude service between Crane (in West Texas) and the Houston area — the pipe for a few years had been reversed to move refined products west — and boosted its capacity by 50 Mb/d (to the current 275 Mb/d) by adding DRAs and making other operational tweaks. A number of other Permian takeaway pipelines also are believed to be using DRAs too, but pipeline owners are not required to report their use unless they want to. It’s a good bet that every company that owns a Permian crude takeaway pipe is either already using DRAs or has been investigating whether doing so might be cost-effective in today’s big-spread environment. And it’s entirely possible that another DRA-related pipeline expansion could surface in the next few weeks, though as the Midland-to-Sealy and BridgeTex expansions noted above show, it can take six months or more to add a DRA system to a pipeline.

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Everybody Knew

So, what do you know. It was John Brennan all the time. The dots are connecting. It starts to explain why Chuck Schumer has been so quiet throughout all of this. The "John Brennan" wiki entry provides some hints, but only with 20-20 hindsight. It now makes sense why Brennan has been so incredibly vocal; until now, it never made sense. He knew the Mueller investigation would eventually get to him.

But everyone knew.

Everybody Knows, Leonard Cohen
How did Hillary lose this election? Wow.