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New pipeline infrastructure ready for rise in Permian oil production

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US pipeline infrastructure has expanded to allow oil produced in the Permian Basin to reach demand centres on the US Gulf Coast, according to the US Energy Information Administration (EIA).

Between 2010 and 2014 crude oil production in the Permian Basin, situated in southeast New Mexico and west Texas, increased significantly. By 2014 production levels had reached 1.5 million barrels per day, which was substantially more than could be accommodated by the region’s refining and pipeline infrastructure. This led to substantial price discounts at the crude oil gathering and transportation hub in Midland, Texas when compared with Cushing, Oklahoma, a sign that pumping capacity couldn’t meet demand and more expensive methods were being used to transport oil out of the Permian Basin region.

In 2014, this Midland versus Cushing discount reached as high as $6 per barrel. However, according to the EIA this discount is “unlikely to be either as large or as persistent as it was following the rapid increase in Permian production from 2010 to 2014.”

The EIA claims that new pipeline infrastructure has seen the Midland versus Cushing discount progressively narrow, falling to an average of $0.18 per barrel in 2015, and $0.07 in 2016.

“Pipeline infrastructure in the Permian is now better equipped to handle new production than it was in 2014”, explains the EIA. “Several pipelines that came online to accommodate rising Permian production in recent years, such as Magellan’s BridgeTex pipeline, Sunoco Logistics’ Permian Express pipeline, and Plains All American’s Cactus pipeline, are undergoing expansions that are set to come online later this year, adding approximately 340,000 b/d of capacity.”

The EIA also points out that after 2017, several new pipelines are planned which could cope with any additional expansion in Permian oil production.

One of the world’s thickest deposits of rock from the Permian geologic period, the Permian basin is a major oil and natural gas producing area. Total production for the region up until 1993 was over 14.9 billion barrels. The Permian’s in-region refining capacity, close proximity to large refining centres on the Gulf Coast, and existing pipeline infrastructure make it attractive to oil producers.