Production from the US’ fastest-growing oil play continues to rise, but infrastructure has lagged the surging output leading to steep discounts at the region’s pricing hub. New pipelines in development should alleviate the regional bottleneck and support further production growth, particularly with the backdrop of a firmer global market.

Permian pipeline buildout

The Midland WTI discount to Cushing WTI averaged $10.26/b in May, widening from a $5.96/b discount in April, S&P Global Platts data shows. The Midland discount to Houston averaged $14.28/b, nearly doubling the $7.79/b average discount in April. In May 2017, the discount was just $2.28/b.  While Midland WTI prices have been pressured lower because takeaway capacity is lagging production growth, crude prices on the Gulf Coast have been lifted by strong export demand for US crudes. Weekly US crude exports hit a record high 2.57 million b/d the week ending May 11, according to the US Energy Information Administration.

Current pipeline takeaway capacity out of the Permian is roughly 3.1 million b/d, which combined with local refinery demand for Permian crude at just under 300,000 b/d falls short of production.  Current price discounts have made moving crude by rail economical, although there is limited rail capacity. There is roughly 315,000 b/d of Permian Basin rail capacity, but much of that is now being used to move other commodities like frac sands.  Plains All American, which is already trucking volumes from the Permian, said it sees limited opportunities for offering CBR services from its McCamey, Texas terminal, which can move up to 15,000 b/d as transloading facilities in the basin are geared more towards handling frac sand.  Murex, along with Cetane Energy, said it will expand Cetane’s transloading facility at Carlsbad, New Mexico, boosting its CBR capacity by 40,000 b/d to 75,000 b/d in the third quarter.