By - Michael Drost

Permian midstream companies worried about growth

Energize Weekly, August 12, 2015

Pipeline operators say they may have gone overboard with projects in the Permian Basin as output continues to wane in the face of low oil prices.

Companies which ordered new pipelines to be built since 2014 to reduce bottlenecks in one of the country’s biggest oil-producing regions are now facing lower-than-expected pipeline volumes, which could affect the construction of new pipeline projects companies rely on to drive revenue growth, according to an analysis of earnings calls by Reuters.

Plains All American Pipeline, one of the biggest pipeline operators in the region, said that it will be reducing its growth guidance and that 2016 could be even be flat, based on estimated volume outputs. The outlook reflected a more “conservative assessment” of the effects of competition and overbuilt infrastructure in the area.

Plains’ partner company Magellan Midstream Partners said that they are unsure whether new long-haul pipelines are needed in addition to those already under construction, while Sunoco Logistics Partners said that they expected that growth in the Permian will be stunted at least for now.

“We recognize that in the short term, the Permian does have enough takeaway capacity,” they said.

Still, some pipeline developers in the Permian are announcing new projects. ONEOK Partners L.P. said late last month that it would be investing up to $100 million to expand its WesTex Transmission natural gas pipeline. The project is slated to be completed by the first quarter 2017, and will enable the pipeline to handle a capacity of 260 million cubic feet per day.

Furthermore, despite falling prices, oil output in the Permian has actually grown over the past year, increasing from 1.7 million barrels per day in September 2014 to over 2 million barrels per day this past month. By comparison, output from the Eagle Ford shale region has decreased from a 1.7 million barrels per day in March to just over 1.5 million barrels per day in August.

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