Texas Oil Pipelines Face Dry Months as Production Languishes

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Nearly half of all oil pipelines from the Permian basin, the biggest U.S. oilfield, are expected to be empty by the end of the year, analysts and executives said.

Pipeline companies went on a construction spree throughout 2018 and 2019 to handle blistering growth in U.S. crude production to a record 13 million barrels per day bpd. However, the coronavirus pandemic crushed both fuel demand and oil production, and neither have recovered fully, leaving many pipelines unused.

Major pipeline companies are exploring ways to ship other products in those lines and considering selling stakes in operations to raise cash.

The coronavirus pandemic upended the global energy supply system and worldwide fuel demand. U.S. gasoline consumption is now estimated to be past its peak and as refiners process less crude, producers are not filling pipelines used to transport it.

By the fourth quarter, total utilization of the largest oil pipelines from the Permian is expected to drop to 57, consultancy Wood Mackenzie said. The nadir during the last market bust in 2016 was roughly 70.

U.S. crude output is currently about 11 million bpd, and is not expected to grow much until 2022. But more pipelines were already set to come online, growing the gap between production and capacity covered by longterm contracts to a record over 1 million bpd in February, according to energy research firm East Daley Capital.

We do not expect to be at preCOVID production levels by end2022, said Saad Rahim, chief…

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