1 MMBPD line would be largest on schedule

Pipeline companies are responding to the current takeaway crunch in the Permian.

Plains All American Pipeline (ticker: PAA) and ExxonMobil (ticker: XOM) announced plans for a massive pipeline yesterday.

Exxon and Plains All American have signed a letter of intent to construct one of the largest lines out of the basin, with the capacity to ship more than 1 MMBPD of oil and condensate. The two companies will form a JV to build and operate the line.

The line will originate in the heart of the Permian, drawing from Wink and Midland. Oil will be delivered to the Gulf Coast, with endpoints in Webster, Baytown and Beaumont.

The pipeline may directly feed Exxon’s Gulf Coast refineries, as the company has facilities in both Baytown and Beaumont. There are numerous other nearby refineries, allowing the new pipeline to terminate in a major demand center.

The proposed line would be among the largest planned in the basin.

Both Phillips 66 and ETP are developing pipelines that could be upgraded to 1 MMBPD, but no other upcoming line has a nameplate capacity of over 1 MMBPD.

While details have not yet been released by the companies, the new pipeline will more than likely carry more than just Exxon’s Permian production, as Exxon’s XTO unit is not producing enough to fill the line. XTO is currently producing roughly 100 MBOEPD in the Permian, and is projected to be producing about 600 MBOEPD in 2025. This is well below the pipeline’s capacity, so other producers will likely transport on the line as well.

Exxon Announces Massive Pipeline for the Permian

Source: Exxon Investor Presentation

Hard to believe, but Permian oil takeaway could be overbuilt in 2020, or not

A timeline for the project has not been released yet, but if it comes online at the same time as the other proposed pipelines, the Permian may find itself with excess takeaway capacity in two years. Roughly 2 MMBPD of capacity is currently scheduled to come online in 2019 and 2020, with most projects beginning operations in Q4 2019.

Current company spending plans suggest this new capacity will exceed production from the Permian, so if Exxon and Plains All American’s line comes online at the same time, there may not be enough production to immediately fill it.

However, a new IHS Markit outlook released today expects the Permian Basin’s crude oil production to more than double its 2017 record of 2.5 MMBOPD to 5.4 MMBOPD by 2023. If that happens the new Exxon pipeline will be needed, as currently planned projects will bring basin takeaway to roughly 5.4 MMBOPD.

Exxon Announces Massive Pipeline for the Permian

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