Permian crude gusher creates wave of pipeline, refinery investments
By DAN MURTAUGH
The gusher of crude from the Permian Basin has spurred new investments from refinery and pipeline companies trying to take advantage of low prices caused by rising supplies.
Delek US Holdings expects to expand its refinery in Tyler, Texas, by 25% in early 2015, and Sunoco Logistics asked shippers if they wanted to commit to a new pipeline to carry West Texas oil across the state and into southern Louisiana.
The projects underscore the continued influence of the shale boom on the US energy landscape more than five years after hydraulic fracturing and horizontal drilling helped reverse a decades-long decline in oil production.
Theres like a wall of crude oil coming out of the Permian, said David Hackett, president of Stillwater Associates, an Irvine, California-based energy consulting firm. The first projects look like theyre all filled up, now the next wave is getting announced.
The Permian Basin in West Texas and New Mexico is the largest oil field in the US. Its expected to produce 1.63 million bpd of oil in August, up 86% from August 2008. The rapid increase has caused prices in the Permian hub of Midland, Texas, to slump to $11.50/bbl below the US benchmark in Cushing, Oklahoma, from a discount of 35 cents a year earlier, according to data compiled by Bloomberg.
The growing production has exceeded pipeline development, which we think will continue to result in periods of wide Midland/Cushing crude differentials, Jeff Stevens, chief executive officer for Western Refining, said April 5 in an earnings call. Western operates a refinery in El Paso, Texas.
Delek wants to refine more of that cheap oil at its plant in Tyler, 100 miles (160 kilometers) east of Dallas. It plans to increase crude capacity there by 15,000 bpd to 75,000 in the first quarter of 2015, the company said in its quarterly earnings statement. The refinery gets 92% of its crude from West Texas now, the company said in an investor presentation.
The plant will also expand sulfur-removing systems to increase gasoline production by 18% to 41,000 bpd and low-sulfur diesel and jet fuel output by 27% to 33,500 bpd. Total cost of the expansion will be $70 million.
Sunoco announced an open season for companies to make binding commitments to ship crude on the Permian Longview and Louisiana extension pipeline. The line would take 100,000 bpd from Midland to Longview in northeast Texas and then 80,000 bpd to Anchorage, Louisiana. The project, which would use some existing pipelines, would be ready to start operating in the second half of 2016.