Permian Takeaway Capacity Is The Issue To Watch Out For

Summary

  • US oil production will grow and surpass 11 million b/d this year.
  • Trued-up US oil production for February was around 10.195 million b/d.
  • Permian takeaway capacity constraints at the end of 2018 put basin production capped around 3.5 million b/d until more takeaway capacity comes online in 2019.
  • Plains All American's Sunrise Extension is scheduled for Q1 2019 and Cactus II is scheduled for Q3 2019.

Welcome to the takeaway capacity edition of Oil Markets Daily!

US oil production will grow and surpass 11 million b/d this year. Our trued-up US oil production calculation had February coming in at 10.195 million b/d (as explained here). And in our EIA drilling productivity report coverage released last month, we said Permian will power more than 60% of the US shale oil production growth this year.

For the Permian, we have an average production increase of ~650k b/d this year with the annual average around 3.1 million b/d.

Much of this production growth, however, will be contingent on increases in takeaway capacity. Plains All American (PAA) is the top midstream operator in the Permian basin, and PAA is expected to massively increase takeaway capacity in 2019. See chart below:

Rystad Energy also came out with a tweet today reiterating the view that the projected takeaway capacity from Plains All American has to come online on schedule for 2019 growth to be secured.

According to PAA, the growth that's set to come in 2019 will be dependent on the start-up of Cactus II and Sunrise Extension. While it's much harder to decern from Rystad's chart the exact timeline, this is what PAA has put out for when the two pipelines will be in operation:

  • Sunrise Extension/Loop - Q1 2019
  • Cactus II - Q3 2019

As long as these pipelines come online when they are meant to, Permian takeaway capacity will be fine for the time being. However, as you can see in the chart from PAA above, the exit production for Permian will likely be around ~3.5 million b/d, putting the exit-to-exit growth around ~700k b/d due to available takeaway capacity.

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