IEA (2018), Infrastructure investments key to unlocking more US oil supply, IEA, Paris https://www.iea.org/commentaries/infrastructure-investments-key-to-unlocking-more-us-oil-supply
The United States is on pace to becoming the world’s top oil producer by 2023, thanks mainly to the phenomenal growth of shale production. The IEA estimates that by then, US output will expand by 3.7 million barrels per day (mb/d), more than half of the world’s expected production capacity growth.
One region in particular stands out – the Permian basin in West Texas. But as Permian and Eagle Ford crude oil production doubles, growing by 2.7 mb/d by 2023, investments in new pipeline and port export capacity will be critical to getting this oil to market.
The period 2012-2014 was marked by historical supply expansion in the Permian but also lower-than-expected revenues for producers as pipeline constraints contributed to local prices $20 per barrel below the WTI benchmark. Since then, crude pipeline capacity has more than doubled and constraints have eased, as lower oil prices reduced oil supply growth.
However, Permian production expanded rapidly last year, reducing the amount of available pipeline capacity to just 160,000 barrels a day in December 2017, or around 4% of total Texas crude production. This small capacity cushion is likely to come under pressure this year, despite capacity expansions of the Midland to Sealy, BridgeTex and Permian Express 3 pipelines. Ultimately, Permian and Eagle Ford takeaway capacity is likely to become insufficient by mid-year, with a deficit possibly reaching as much as 290,000 barrels a day during the first half of 2019.
While new pipelines in Texas do not typically face much resistance from local residents, they remain complex pieces of infrastructure that take years to build. Over the next year or so, the key question for Permian producers is whether or not the planned 550,000 barrels a day EPIC pipeline will be up and running in 2019.
Beyond 2019, there are more than enough projects (including Sunrise, Permian Express 3, Cactus 2, and Gray Oak) to ensure plenty of takeaway capacity from the region, even if most of these are still on the drawing board. If all planned investments come to fruition, Permian nameplate capacity will more than double from its current 2.8 mb/d to 5.8 mb/d by the end of 2020.
It remains unclear at this stage whether the steel tariffs proposed by the Trump administration at the beginning of March 2018 will affect pipeline operators who have applied for an exemption. They certainly have the potential to slow down project completion, but are unlikely to derail the projects altogether.
Further down the export route, the United States also faces limitations to its ambitions of becoming an even larger crude exporter including a lack of storage in some locations and competition from product exports for infrastructure. More critically, Gulf Coast terminals were built as import, rather than export facilities, and due to their limited depth cannot currently accommodate the largest oil tankers.
One port stands out, Corpus Christi, which is being targeted for upgrades thanks to its deeper channel and potential to accommodate larger tankers. It also has less refining capacity and doesn’t face as much competition from other oil products as Houston does, meaning it could operate as a dedicated crude-export terminal.
Over time, the US pipeline and export limitations are likely to be erased with additional investments. As a result, the IEA forecasts that export capacity will rise from 1.9 mb/d at the end of 2017 to 4.7 mb/d in 2020, and reach nearly 5 mb/d in 2023. In the process, Corpus Christi will solidify its position as the largest crude export hub in North America.