Since crude oil prices tanked four years ago, the oil pipeline industry has seen many setbacks and slowdowns. Permitting woes, public resistance and narrow profit margins - both upstream and downstream pipeline companies - have made major oil pipelines seem like increasingly risky propositions. As such, Industrial Info saw very low growth in crude oil pipelines in the u.s during 2015 and 2016.

However, as prices increased in 2016, bringing production rates along with them, new pipeline capacity has become necessary, leading to a ballooning of project spending in crude oil pipelines in 2017. This spending has been largely centered in Texas, a change from the previous leader, Western Canada.

In 2014, there was a boom in spending on oil pipelines . Industrial Info added more than 330 project profiles, representing over $30 billion in spending. Most of this spending was dominated by mega projects in Alberta and Saskatchewan, with Texas representing only $2.5 billion. In stark contrast, 2016 was the slowest year in recent times, with only 35 new projects valued at just over $1.6 billion. However, Texas started to assert itself and had more than $800 million in spending, or fully half of the value of all the new projects added that year. In 2017, new pipeline investments in Texas grew to $4.7 billion, or two-thirds of the North American total of $6.6 billion.

Grassroot development dominates the current outlook for u.s pipelines with $42 billion out of almost $50 billion associated with new-build activity. There is still, however a decent volume of smaller pipeline projects, pipeline replacements, pipeline extensions, and modernizations.

Almost $23 billion of the 2018-2019 projection is based on pipelines in Canada. Oil production in Canada continues to increase from early oil sands projects now operational. There is 2.4 mn BBL/d of crude coming out of Western Canada, and this is set to increase to 3.7 mn BBL/d by 2030. Therefore it is imperative for some of the major pipelines to move forward to alleviate future bottlenecks. Two projects are tied up in legal proceedings and the Keystone XL pipeline awaits FID.

Permian Basin Activity

In the U.S, the Permian basin is helping to drive a lot of planned spending. The Permian is currently producing around 2.4 mn BBL/d and this is set to increase. In 2017, Industrial Info was tracking three crude oil pipelines projects for the Permian takeaway- Industrial Info has added another eight projects for 2018.

The available takeaway capacity, coupled with local demand, means there has been no physical constraint on getting crude to market. Local refinery demand is roughly 405,000 BBL/d, and pipeline capacity currently sits at just more than 2.4 million BBL/d. Rail transport, while not as economically efficient as pipeline transport, represents 597,000 BBL/d of takeaway capacity in the region.

As of the end of 2017, the Permian Basin had a total outbound capacity of 3 million BBL/d, including both rail and pipeline. While this means that there is no physical constraint on Permian Crude, it does indicate a need for at least 200,000 BBL/d of additional pipeline capacity to offset the amount of crude that needs to be shipped by rail.

IIR has noted the increased crude oil production seen in the U.S. in recent years. In 2010, the U.S. produced about 5.5 million barrels per day (BBL/d); by this past October, this had increased to 11.2 million BBL/d. A large part of the increased production is coming from the Permian Basin of West Texas and New Mexico, which is now suffering from a shortage of takeaway pipeline capacity, driving down oil prices in the region. IIR said at the start of 2018, Permian crude was priced more or less at parity with the U.S. benchmark, West Texas Intermediate (WTI). However, a few months into the year, this parity dropped, and Permian crude began trading at a fairly steep discount compared with WTI.

To remedy this, pipeline construction is taking off in the Permian Basin. Industrial Info is tracking five pipeline projects that are under construction in the Permian and another seven that are planned. In addition, EPIC Midstream LLC, which was constructing a natural gas liquids pipeline out of the Permian, earlier this year announced that it would use the pipeline for crude oil.

In the Permian, Phillips 66 Partners, the midstream spinoff of Phillips 66, has announced that, after a successful initial open season, it will commence construction on the Gray Oak crude oil pipeline, running from the Permian Basin to Corpus Christi, Texas, as well as refining hubs near Freeport and Houston. The project is a joint venture between Phillips 66 Partners (75%) and Andeavor (25%). Enbridge Incorporated has the option to acquire up to 32.75% of the project, which would come from Phillips 66 Partners' share. Industrial Info is tracking more than $2 billion in Phillips 66 Partners pipeline projects.

Key Oil Pipeline Projects

Magellan announced that it had ordered pipeline steel and is seeking permits and right-of-way approval for the $150 million Houston-to-Hearne crude oil pipeline and $60 million Wink-to-Crane pipeline, both in Texas. The Houston-to-Hearne line will carry more than 85,000 barrels per day (BBL/d) of refined products 135 miles in two spreads, with access to other points in the Texas, Mid-Continent and Arkansas markets; the Wink-to-Crane line will carry 250,000 BBL/d (expandable up to 600,000 BBL/d) of Delaware Basin crude oil 60 miles from Wink to an interconnection with Magellan's Longhorn Pipeline. The company expects both to be operational in mid-2019.

Among the projects recently placed into service is the Midland-to-Sealy crude oil pipeline in Texas. Construction on 450,000-barrel-per-day (BBL/d) pipeline began in the first half of 2017. The capacity can be expanded up to 575,000 BBL/d. Primoris Services Corporation (Dallas, Texas), Holloman Corporation (Houston) and Pumpco Incorporated (Giddings, Texas) were general contractors on the project, which had an estimated total investment value (TIV) of $760 million.

In Canada, Trans-Northern Pipelines Limited (Calgary) plans to kick off Phase II of a refined products pipeline replacement program this summer. Approximately 185 miles of new pipeline will be laid adjacent to the existing pipeline, which will be abandoned in place. The pipeline will carry 48,400 BBL/d of refined products from Edmonton to Calgary in Alberta. Stantec Incorporated (NYSE:STN) (Edmonton) is engineer on the project, which has an estimated TIV of $280 million.

Efforts to address the Permian's logistics challenges are underway. A large crude oil pipeline expansion project, Phase 1 of the Permian Express 3 Pipeline, began construction earlier this year. Construction of this $695 million project is scheduled to be completed this October. The developer, Energy Transfer Partners L.P. (NYSE:ETP) (Dallas, Texas), last month began soliciting binding commitments for up to 50,000 BBL/d on the pipeline, all the remaining uncommitted capacity on the 140,000-BBL/d project. The developer has said the project could be doubled if market conditions warrant it. When operating, that pipeline will carry crude oil from Garden City, Texas, to Wortham, Texas.

Energy Transfer Partners also is developing a second Permian pipeline project, the Permian-Nederland Crude Oil Pipeline, but that is not scheduled to begin construction until early 2019. That $550 million project is scheduled to be operating by April 2020. It is designed to carry up to 600,000 BBL/d of crude oil from Midland, Texas, to the Houston Ship Channel.

Buckeye Partners (NYSE:BPL) (Houston, Texas) is underway with reversing the flow of its 350-mile Laurel refined products pipeline to deliver products from Midwestern refiners east toward Philadelphia. Kelly General Construction Company (Decatur, Illinois) is acting as the contractor on the project, which has an estimated TIV of $250 million. For more information, see Industrial Info's project reports on the Ohio and Pennsylvania portions of the pipeline, as well as grassroot pump stations in Ohio and Pennsylvania.

Another project nearing kickoff in Oklahoma is the Cimarron Express Pipeline, a 50:50 joint venture between Kingfisher Midstream LLC, a subsidiary of Alta Mesa Resources Incorporated and affiliates of Ergon Incorporated; Blueknight Energy Partners LP is serving as project manager.

The 65-mile line will run from Kingfisher County to Blueknight's crude oil terminal in Cushing, Oklahoma, with an initial capacity of 90,000 BBL/d, eventually expandable to more than 175,000 BBL/d.

Industrial Info is tracking the estimated $65 million pipeline and its $30 million pump station in Dover, Oklahoma, and assesses both as having a high probability of moving forward as planned. The companies involved expect the pipeline to be completed in the summer of 2019.

Other key U.S Oil Pipeline projects include:

• Phillips 66 –Orla Crude Oil Pipeline

• Pilgrim Pipeline LLC – Pilgrim Crude Oil Pipeline

• Delek Partners – Longview Crude Oil Pipeline Expansion

• Enbridge – Superior Crude Oil Pipeline

• Velocity Midstream Partners – Minco Merge II Crude Oil Pipeline

• EPIC Midstream Holdings LP's (Houston) $450 million portion of the
EPIC Crude Oil Pipeline, designed to transport 590,000 BBL/d
(expandable to 675,000 BBL/d) of Permian and Eagle Ford Shale crude
oil 280 miles from origin points in Orla, Saragosa, Crane and to
Gardendale, Texas;

• EPIC Midstream's $375 million portion of the EPIC Crude Oil
Pipeline, designed to transport 590,000 BBL/d (expandable to
675,000 BBL/d) of Permian and Eagle Ford Shale crude oil 215 miles
from origin points in Orla, Saragosa, and Crane to Midland.

• EPIC Midstream's $350 million portion of the EPIC Crude Oil
Pipeline, designed to transport 590,000 BBL/d (expandable to
675,000 BBL/d) of Permian and Eagle Ford Shale crude oil 235 miles
from origin points in Orla, Saragosa, and Crane to Gardendale.


Tallgrass' proposed, 700-mile Seahorse Pipeline is another ambitious project that would transport up to 800,000 barrels of per day (BBL/d) of crude oil from the hub in Cushing, Oklahoma, to the Louisiana Gulf Coast, connecting domestic refiners and international markets to five production basins. The company held an open season for prospective customers from August 15 through October 1. The pipeline is split into three segments:

• the estimated $700 million Oklahoma portion, which runs 275 miles;

• the estimated $600 million Texas portion, which runs 350 miles;

• the estimated $200 million Louisiana portion, which runs 75 miles;

Industrial Info also is tracking progress on nine proposed pump stations for Seahorse, each estimated at $75 million:

• south of Cushing, Oklahoma; see project report
• south of Chandler, Oklahoma; see project report
• west of Holdenville, Oklahoma; see project report
• south of Cooper, Texas; see project report
• south of Marshall, Texas; see project report
• south of Gilmer, Texas; see project report
• Convent, Louisiana; see project report
• south of Many, Louisiana; see project report
• south of Plaquemine, Louisiana;

Industrial Info has added almost half a billion dollars in crude oil pipeline projects. Half of this spending is in Texas, and Industrial Info is finding more projects day by day.

For more information and the latest oil & gas news, please subscribe to the IIR blog.

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