Building out the Permian crude oil gathering system - Part 3

Sandy Fielden, RBN Energy

Permian Basin crude production is expanding rapidly. At over 1.5 MMb/d it already represents nearly 19 percent of total US crude output. Midstream companies are busy developing more than a dozen gathering system extensions and additions to deliver Permian production to about 1 MMBbl of mainline pipeline capacity coming online between the start of 2013 and 2015. In today’s blog “Come Gather ‘Round Pipelines – Part 3: Plains Permian Crude Gathering System Expansions” Sandy Fielden details planned improvements to the Basin and Cactus pipelines.

In Episode 1 of this series we reviewed the current crude price situation and takeaway capacity balance in the booming Permian Basin. At the moment, production exceeds local demand and takeaway capacity so that producers are experiencing price discounts at Midland, TX for West Texas Intermediate (WTI) and West Texas Sour (WTS) crudes versus the Cushing, OK trading hub of around $8/Bbl. The spread between Midland WTI and the Gulf Coast benchmark light sweet crude Light Louisiana Sweet (LLS) is about $10/Bbl. As soon as the new 300 Mb/d BridgeTex pipeline – a joint venture between Magellan Midstream and Occidental – comes online in June we can expect the Midland/LLS spread to narrow. In the meantime, the price spreads are generally too low to justify more expensive rail transport out of the Permian. In Episode 2 we provided an overview of the mainline pipelines out of the Permian and the current centers of production activity and then started our survey of gathering systems with the new Cline Shale pipeline lateral expected online in June of this year that will deliver up to 75 Mb/d of crude to the Centurion and BridgeTex pipelines in Colorado City. In this episode we cover pipeline additions and expansions planned by Plains All American.

Plains All American
We have frequently detailed the midstream operations of Plains All American Pipeline L.P. (PAA) - one of the largest midstream crude oil players in the US. The company handles about 3.5 MMb/d of crude oil and natural gas liquids (NGLs) as well as storage and terminal facilities for natural gas, natural gas liquids, crude and refined products. Plains operate significant crude gathering systems in the Permian and Eagle Ford basins. We originally described the Plains Basin pipeline in the New Adventures of Good ‘Ole Boy Permian and we have also covered their midstream activities in Part 3 and Part 4 of our Eagle Ford series “Knocking on Heaven’s Door”. We covered Plains infrastructure to move condensate from the Eagle Ford to Western Canada in Plains Trains & Diluent Deals and we also detailed their crude by rail activities in the Bakken in our Crude Loves Rock’n’Rail series in 2013.

Plains in the Permian

Plains owns and operates significant crude oil assets in the Permian Basin including (as of February 2014) 3,550 miles of pipelines, 8 MMBbl of storage capacity and ~100 gathering truck stations (see map in Figure 1). The company transports about 1.4 MMb/d of oil in the Permian including 375 Mb/d of “first purchaser” gathered barrels. The principal pipeline asset is the Basin Pipeline (red line in Figure 1) that runs from Jal, NM to Midland, TX and then to Cushing, OK via Wichita Falls. The Basin pipeline has a double loop, known as the Mesa pipeline between Midland and Colorado City. The current crude capacity from Colorado City to Cushing is 450 Mb/d.

 

Figure 1: Source: Plains All American Presentation

Cactus Pipeline
In May of 2013, Plains announced a new pipeline that will move up to 200 Mb/d of crude oil from their gathering systems in the Permian Basin south to the Eagle Ford region. The Cactus Pipeline will be a 310-mile, 20-inch crude oil pipeline running from the Plains terminal at McCamey, TX, to their terminal at Gardendale in La Salle County, TX (see the map in Figure 2 below).  Gardendale is the Plains crude gathering hub in the western Eagle Ford crude and condensate window. The Gardendale terminal has storage, a crude condensate stabilization facility, a 25 Mb/d rail loading terminal and a main pipeline takeaway link that can ship to either Corpus Christi or Houston. The takeaway link is the 350 Mb/d Eagle Ford pipeline – a Plains 50/50 joint venture with Enterprise Product Partners, completed in September 2013 that links Gardendale to Three Rivers where it divides into two routes. The southern leg continues to Corpus Christi where it can feed the three local refineries or load barrels onto barges at the Plains Viola Barge Dock for transport to refineries along the Gulf Coast and further up the East Coast. The eastbound leg of the Eagle Ford pipeline from Three Rivers connects to the Enterprise Eagle Ford crude pipeline at Lyssy, that ships up to 350 Mb/d of crude to the Enterprise crude Houston terminal known as ECHO (see ECHO and the Blending Men).

 

Figure 2: Source: Plains All American Presentation

The Cactus pipeline is supported by a long-term capacity commitment and is expected to be in service in the second quarter of 2015. Plains estimates the cost of the pipeline will be between $350 and $375 million. The pipeline will provide an important link between the Permian Basin and the Eagle Ford – giving Permian shippers the flexibility of two new routes to market. It is also an important development because of increasing production of very light hydrocarbons – known as condensate from shale in the Permian. As we have previously discussed, condensate production is growing from shale basins – in particular the Eagle Ford. This has led to midstream companies developing plans to process condensate using splitters, at least three of which are proposed for Corpus Christi (see Whole Lotta Splittin’ Going On). The Cactus pipeline therefore provides a convenient route for Permian condensate production to reach Gulf Coast condensate splitter capacity. In addition the Cactus pipeline provides a possible direct route for Corpus Christi refiners to source West Texas Sour (WTS) crude from the Permian that would replace barrels currently imported from overseas. 

Subsequent to the initial Cactus Pipeline announcement, Plains and Enterprise announced in September 2013 that they plan to expand their JV Eagle Ford pipeline from its current 350 Mb/d to 470 Mb/d.  The expansion will accommodate increased flows from Cactus into the JV pipeline and is expected to be complete at the same time as Cactus in Q2 2015. The expansion includes constructing an additional 2.3 MMBbl of operational storage capacity in Gardendale, Tilden and Corpus Christi.

Basin and Cactus Expansions

In December 2013, Plains announced a series of four new projects involving expansions to their Basin crude gathering system in the Permian and the Cactus pipeline currently under construction as follows:

  • The first project will add pumping capacity to the Basin pipeline between Jal, NM and Wink, TX - increasing the pipeline’s capacity by 100 Mb/d to 240 Mb/d and also involve the construction of a new 40-mile, 12-inch pipeline with 100 Mb/d capacity from Monahans to Crane, Texas. The Jal to Wink expansion increases the flow of crude from Delaware basin production in New Mexico to Wink – where it can flow to Midland on the Basin pipeline or south to Monahans. The new link between Monahans and Crane will allow crude from Jal to reach the Magellan Longhorn pipeline to Houston at Crane or to travel further to McCamey, that is the origin of the Cactus pipeline.
  • The second project provides a more direct gathering system directed to the Cactus pipeline at McCamey. Plains will construct a new 62-mile, 200 Mb/d pipeline that will gather crude from production in the South Midland Basin in Central Reagan and Central Upton counties and deliver it to McCamey.
  • The third project involves constructing a new 80-mile, 20-inch 250 Mb/d pipeline between Midland and Colorado City. This new pipeline – along the route of the existing Basin pipeline will offer connections to outbound pipelines at Colorado City including BridgeTex (online in June 2014) and Permian Express 2 (online mid-2015).
  • The fourth project will increase pumping capacity on the Cactus pipeline under construction to expand the flow from 200 Mb/d to 250 Mb/d based on shipper demand.

All in all, Plains is adding 640 Mb/d of new crude gathering capacity to feed the Basin and Cactus pipelines over the next year or so. That is in addition to another 120 Mb/d capacity added to their Eagle Ford JV pipeline with Enterprise from Gardendale to Three Rivers and Corpus Christi. For the most part these additional barrels will feed the Plains pipeline ecosystem – particularly the new Cactus pipeline at McCamey but they will also be adding capacity to feed the Longhorn pipeline at Crane. The Cactus pipeline represents an important link between the Permian and Eagle Ford basins and will provide a valuable outlet for Permian condensate production. Providing direct access to waterborne transport at Corpus Christi will also improve producer optionality to deliver further along the Gulf Coast than Houston – even up to the East Coast and Canada’s Atlantic Coast.

 

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