Too much oil? Texas Boom Outpaces Supply, Transport Networks

The west Texas drillers that drove the shale revolution have overwhelmed the region’s infrastructure with oil production -driving up costs, depressing regional oil prices and slowing the pace of growth. The U.S. government continues to forecast the country’s oil output rising to fresh record. But competition for limited resources in Texas is making it harder for shale producers to turn a profit and encouraging some to invest elsewhere. Texas is home to the Permian Basin, the largest U.S. oil field and the center of the country’s shale industry. In the past three years, production from the Permian has risen a whopping 1.5 million barrels per day (bpd) to 3.43 million bpd. All that oil means pipelines from the shale patch are full, so producers are paying more to transport oil on trucks and rail cars. Some companies are reducing the scope of their operations in the Permian. ConocoPhillips (COP.N) and Carrizo Oil & Gas (CRZO.O) each moved a Permian drilling rig to another oilfield, and Conoco idled a second, the companies have said. Noble Energy (NBL.N) also has cut back on its well completions and said it is moving some drilling resources to Colorado.

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This reduces a littlebit the amount on the market? And the OPEC will react as soon as possible. Scientists told us... we are running out of oil in 2020. Do we?

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Yep. And a lot of logistic issues. DUCs, also called drilled but uncompleted wells.
“There’s over 8,000 [DUCs] on a national basis, but 43 percent of those, 3,600 of them, are in [the] Permian Basin and that number is continuing to rise”

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It is not the only problem there. West Texas electricity grid is buckling under the pressure of Permian Basin power usage. The electrical grid in West Texas "was not set up to withstand that much power going through it," said Marco Caccavale, a vice president at the oilfield services company Baker Hughes. 

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Suggestion: Send that oil my way so my gas prices drop below $2....

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1 hour ago, rainman said:

The west Texas drillers that drove the shale revolution have overwhelmed the region’s infrastructure with oil production -driving up costs, depressing regional oil prices and slowing the pace of growth. The U.S. government continues to forecast the country’s oil output rising to fresh record. But competition for limited resources in Texas is making it harder for shale producers to turn a profit and encouraging some to invest elsewhere. Texas is home to the Permian Basin, the largest U.S. oil field and the center of the country’s shale industry. In the past three years, production from the Permian has risen a whopping 1.5 million barrels per day (bpd) to 3.43 million bpd. All that oil means pipelines from the shale patch are full, so producers are paying more to transport oil on trucks and rail cars. Some companies are reducing the scope of their operations in the Permian. ConocoPhillips (COP.N) and Carrizo Oil & Gas (CRZO.O) each moved a Permian drilling rig to another oilfield, and Conoco idled a second, the companies have said. Noble Energy (NBL.N) also has cut back on its well completions and said it is moving some drilling resources to Colorado.

I work in the Permian Basin in New Mexico.  I can tell you that my company and other operators are drilling and reworking multiple wells.  We truck since our wells and many others don't have pipeline access.  Doesn't matter as long as prices are over $40 a bbl. Pointing to Conoco as any indicator of what happens in the Permian is not meaningful.  The majors don't do anything that makes sense, but if operators move their rigs to different areas it is most likely due to a time frame issue.  I.e. Lease expiration, Farmout obligations, etc.  Moving rigs is not any indicator of what is happening in the field. Rig shortage is the biggest problem.  2014 was a disaster for the industry.  Stacked rigs for long periods affect their integrity.  That happened during the crushing low prices not that long ago.  The industry is actually still getting back on its feet.  As far as Noble goes, they were Clayton Williams and I have spoken to them myself a month ago.  They may be holding off on operations due to financial issues.  I wouldn't read much into what Noble is doing at this time.  Also, it is possible that Noble can't find a completion unit.

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1 hour ago, Jo Mack said:

I work in the Permian Basin in New Mexico.  I can tell you that my company and other operators are drilling and reworking multiple wells.  We truck since our wells and many others don't have pipeline access.  Doesn't matter as long as prices are over $40 a bbl. Pointing to Conoco as any indicator of what happens in the Permian is not meaningful.  The majors don't do anything that makes sense, but if operators move their rigs to different areas it is most likely due to a time frame issue.  I.e. Lease expiration, Farmout obligations, etc.  Moving rigs is not any indicator of what is happening in the field. Rig shortage is the biggest problem.  2014 was a disaster for the industry.  Stacked rigs for long periods affect their integrity.  That happened during the crushing low prices not that long ago.  The industry is actually still getting back on its feet.  As far as Noble goes, they were Clayton Williams and I have spoken to them myself a month ago.  They may be holding off on operations due to financial issues.  I wouldn't read much into what Noble is doing at this time.  Also, it is possible that Noble can't find a completion unit.

Hey Jo.  Thanks for the perspective from the Permian.  Very much appreciated indeed.  Always good to hear what's actually happening, and why, from the field.  (is that the gypsy? :) )

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Ok. Why are oil prices on the rise if we have a surplus. Gas goes up overnight takes weeks to come back down.

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Wish we could see all this surplus at the gas pump...

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Permian Needs $300B in CAPEX for Growth through 2023

While production in the Permian Basin has been abundant, U.S. independent operators will need to look at new ways of doing business to position themselves for long-term value, according to a report released Oct. 2 by consulting firm Arthur D. Little.

Data in the report forecasts Permian activity through the next five years to:

  • Rise by up to 3 million barrels of oil equivalent per day
  • Possibly produce up to 5.4 million barrels of oil equivalent per day
  • Have a need for up to 41,000 new wells (mostly unconventional) to be drilled to meet production outlook
  • Require more than $300 billion in capital expenditures (CAPEX) to keep pace with growth projections

In turn, independents will need to “comprehend and exploit global markets,” the report states, while suggesting partnership opportunities for U.S. independents as refineries in Mexico, Latin America and China.

Independents will also need to collaborate.

The report called the demands on infrastructure “tremendous,” citing trucking, roads, water usage, power consumption, sand to frack wells and community services like housing, schools and hospitals.

Additionally, about one million barrels per day in production growth are at risk due to the inability of the local infrastructure to support daily operations, according to the report.

Pioneer Natural Resources’ effort to potentially pool power generation to benefit both the operator’s community and local towns and ranches was an example mentioned in the report of the type of collaboration needed.  

Still, the biggest challenge remains the amount of capital needed.

“It is uncertain whether this challenge can be met. It demands that U.S. independents go against their nature by collaborating in key areas. It requires establishing markets, building new partnerships to a level not yet seen in the sector, and giving up control of traditionally competitive capabilities in order to attract the necessary investment capital,” the report states.

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4 hours ago, Petar said:

Ok. Why are oil prices on the rise if we have a surplus. Gas goes up overnight takes weeks to come back down.

Number of reasons

1) Futures speculation

2) Regionally based refining capacities

3) Crude movements-crude  off-take from the areas of production to deliveries of crude to the refineries-by rail tanker cars, tanker trucks, pipelines

4) Seasonal issues-demand, refinery TAM's(turn around and maintenance), gasoline blend requirements (summer/winter blends)

5) Location (eg HI has higher gas prices as well as CA)

6) Federal, State and local taxes

7) Carbon taxes (as in CA)

Sometimes it seems that the price of crude and gasoline is lower in comparison, yet your local gas stations are posting higher prices. It takes time to reflect those lower prices as the supply of gasoline to your local area gas stations doesnt happen overnight. The gas your local gas station selling today may have been purchased and shipped a month or two prior to the time it is available in their UST to pump out of their two armed bandit!

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This is a very good thing for the USA and other countries at the same time .

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Crude Oil Entering Gulf Coast Refineries Has Become Lighter as Imports Have Declined

 
 

Gulf Coast refinery inputs and crude oil API gravity

Source: U.S. Energy Information Administration, Monthly Imports Report, Crude Oil Input Qualities

The density of crude oil processed by U.S. Gulf Coast refineries has become lighter since 2008 as refineries moved away from heavier imported crude oil to lighter crude oil produced in Texas. The Gulf Coast is home to most of the nation's petroleum refineries, and these refineries tend to run a diverse mix of crude oils that, similar to the national average, has become lighter since 2008.

API gravity is a measure of crude oil density that refiners consider when making decisions about the types of crude oil to process. Crude oil with a higher API gravity is lighter, or less dense. Small changes in the API gravity of the combination of crude oils that a refiner processes, called the crude slate, can affect the profitability of the refinery and the shares of petroleum products produced.

Between 1985 and 2008, crude oil inputs to refineries in the Gulf Coast (defined as Petroleum Administration for Defense District 3) were getting heavier, from an API gravity of 34.1 degrees in 1985 to their heaviest at 29.5 degrees in 2008. At about the same time, imported crude oil processed in the Gulf Coast was increasing from 1.4 million barrels per day (b/d) in 1985 to its highest level of 5.8 million b/d in 2004. That trend reversed between 2008 and 2017, when the API gravity of crude oil inputs to refineries in the Gulf Coast increased to 32.0 degrees and imported crude oil processed in the region decreased to 3.1 million b/d.

imports of crude oil to the Gulf Coast by API gravity
Source: U.S. Energy Information Administration, U.S. Crude Import Tracking Tool

Most imports of crude oil to the Gulf Coast region are relatively heavy, as crude oils less than 27 degrees API accounted for 46% of the region's imports in 2009 and 71% of regional imports in 2017. Relatively lighter crude oil imports accounted for 21% of imports in 2009 but had virtually disappeared by 2017.

Texas and New Mexico crude oil production

Gulf Coast refineries substituted imported crude oil with domestic production. Since the beginning of 2015, most of the increase in domestic crude oil production in the region has been relatively light oil of at least 40.1 degrees API because of the increase in production from the Permian Basin, which produces mostly light oil from tight formations.

Gulf Coast gross inputs to refineries by refining district
Source: U.S. Energy Information Administration, Refinery Utilization and Capacity and Crude Oil Input Qualities

In EIA's refinery operation surveys, the Gulf Coast region is separated into five refining districts: Texas Gulf Coast, Texas Inland, New Mexico, Louisiana Gulf Coast, and Northern Louisiana and Arkansas.

The Permian Basin is located in the Texas Inland and New Mexico refining districts, where crude oil inputs account for a comparatively small portion (9%) of total Gulf Coast refining. The capabilities of refineries in these two districts, and their proximity to light production from the Permian Basin, result in them having a lighter crude slate than the other refining districts in the Gulf Coast region, which have relatively easier access to imports of heavy crude oil.

Gulf Coast API gravity by refining district
Source: U.S. Energy Information Administration, Refinery Utilization and Capacity and Crude Oil Input Qualities

The recent Permian production increase could lead the Texas Inland and New Mexico refining districts to process more light oil from the Permian, further lightening the crude slates in those regions. However, refineries in those regions could face other limitations, as lighter crude oil input slates can lead to operational inefficiencies in refineries.

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