Permian Basin pipeline and terminal prices have become overheated, US refiner-controlled logistics companies told investors

OREANDA-NEWS. November 08, 2017. Permian Basin pipeline and terminal prices have become overheated, US refiner-controlled logistics companies told investors this earnings season, discouraging interest in buying more of the west Texas and New Mexico assets.

The higher-price environment could lead to more joint ventures and, ultimately, smaller operations pushed into mergers or acquisitions, the companies say.

"The Permian is a scorching-hot market — a lot of dollars chasing deals out there so it is going to be competitive," HollyFrontier chief executive George Damiris said.

Midstream operators have raced to install oil gathering systems across the Permian and to add pipeline capacity connecting the oil field to larger US Gulf coast markets and overseas buyers.

Shipments on the joint venture 400,000 b/d BridgeTex crude pipeline from Colorado City to Magellan's east Houston terminal increased in the third quarter, to 280,000 b/d. Plains All American Pipeline, Magellan's BridgeTex partner, said volumes on all of its Permian infrastructure increased by 37pc in the third quarter to almost 3mn b/d. Enterprise Products Partners will begin limited service on its 450,000 b/d Midland-to-Sealy pipeline later this month.

Pipeline capacity seemed to have at least matched demand. Discounts for lighter west Texas crude compressed for HollyFrontier's 100,000 b/d Navajo refinery in Artesia, New Mexico, the refiner said. Midland-priced light sweet crude swung to a premium over the US benchmark at Cushing, Oklahoma, two weeks ago. WTI Midland reached a 42?/bl premium to Cushing yesterday. Midland barrels averaged a $2.41/bl discount to Cushing the same week last year.

"As much pipeline capacity has been built in the Permian, people are starving for barrels to put in the pipe," HollyFrontier senior vice president for supply Tom Creery said. "The differentials are not as wide as you might think."

Development slowed for still more capacity out of the basin into Corpus Christi's export facilities. Buckeye Partners continued to seek shipper commitments for a proposed 400,000 b/d South Texas Gateway pipeline from the Permian to Corpus Christi. The company planned to disclose more about that project early next year.