New Challenges for Texas Oil Companies
TEXAS – September 5, 2018
According to the International energy Agency (IEA), the United States in the near future may reach first place in the world in oil production. At the same time, shale oil production will grow at a rate exceeding world demand, which will put pressure on prices this year and slow down the process of market alignment. However, Texas mining companies are already facing an unexpected problem. Oil producers in the Permian Basin, dealing with a shortage of pipelines, are increasingly turning to trucks and rail to ship the flood of crude from the West Texas oil field to refineries and export terminals on the Gulf Coast.
The San Antonio Express-News reports that these transportation shifts are driven by two simple math problems. First, crude oil production in the Permian has reached 3.6 million barrels a day, while pipeline capacity out of the region is just 3.5 million barrels a day, according to the energy research firm Wood Mackenzie. Secondly, crude is selling for as much as $10 more a barrel in South Texas, the Gulf Coast and other markets outside of West Texas, where inventories are building in part because of the lack of pipeline capacity.
Pipeline capacity has become a particular problem in the Permian, as booming production of both crude and natural gas has exceeded capacity and created bottlenecks. Several companies, including Kinder Morgan and Phillips 66 Partners, both of Houston, are racing to complete pipeline projects, but most are not expected to begin operations until at least next year.
The bottlenecks, meanwhile, are not only having an impact on prices in West Texas prices, but also production. The Railroad Commission of Texas, which oversees the oil and gas industry, recently reported that oil production in the state — most of it concentrated in the Permian — declined by about 2 percent in June, compared to the same month a year earlier, the first year over year decline since early 2017. Analysts attributed the decrease to the pipeline shortage.
Oil companies have also turned to the trucking industry to transport their crude, potentially adding more stress on an industry already under pressure from driver shortages and the demands of hauling record amounts of sand, water and equipment for fracking and moving drilling rigs from one site to another.
But environmentalists worry that all of these extra trucks on the road carrying crude oil and trains going through populated areas could pose a public health risk. Luke Metzger, the director of the advocacy group Environment Texas, pointed to an oil train accident and explosions in the Canadian town of Lac-Mégantic that killed more than 40 people when a train full of North Dakota crude oil derailed in the middle of town and exploded.
Metzger said he doesn't believe that many people in the state are aware of dangers posed by increased shipment of crude by truck and rail.
"I think that's unfortunate because these could be very dangerous and people need to know that this could be going to a neighborhood near them soon," Metzger said.
Relief may be coming in the form of what John Coleman, a senior research analyst at Wood Mackenzi calls three mega pipeline projects. Totaling 2.1 million barrels of capacity they are the EPIC Crude Oil Pipeline, the Gray Oak Pipeline, and the Cactus 2 Pipeline. All hope to be completed by the end of 2019.