June 2020, Vol. 247, No. 6
Editor's Notebook
In Texas, Every Little Bit Helps
By Michael Reed, Editor-in-Chief
To quote the frequently quotable Kelcy Warren during a recent network TV interview, “Every day storage is not filled is a day saved for the producer.”
He is, of course, right in his simple assessment, which probably would have faded from my memory almost immediately had the Energy Transfer CEO not referenced a strategy that might add a few days to what has stunningly become a zero-capacity timeline.
“We are looking at just taking idle pipelines and putting oil in those pipes,” Warren told the Fox moderator matter-of-factly. “Believe it or not, you can find a few million barrels of capacity doing that.”
Warren did not elaborate at the time of the broadcast, but it has since been learned his company is looking into idling two Texas pipelines – 2 million barrels of total storage – with that idea in mind. At press time, Energy Transfer was seeking expediated permission from the Texas Railroad Commission, which oversees pipelines in the state, to repurpose the pipelines.
If all goes as Energy Transfer hopes, following the addition of a few pumps, the additional capacity will be available by early summer.
“At the current production rates, it’s pretty defined. We know where we are going to be full and when we are going to be full,” Warren said. “The math tells a very simple story, and that is massive shut-ins will need to occur.”
It is possible, maybe likely, U.S. commercial crude storage will hit its capacity in early June, if not sooner, as demand for U.S. oil exports, along with refinery activity, have both declined by more than 30%.
Thinking small is not something that comes to mind when considering Texans and Texas lore, but Warren is not alone among operators in the Lone Star State who believe every little bit helps. For example, Phillips 66 Partners announced in late April it will offer storage to shippers on its Gray Oak crude oil pipeline system in Texas.
“In response to shipper demand, Gray Oak Pipeline is modifying its rules and regulations to accommodate on-system crude storage,” the company said in a written statement. “Current events have significantly impacted demand for West Texas Crude oil, resulting in an urgent need for crude oil storage.
The Gray Oak pipeline could provide almost 1 million barrels of storage capacity to shippers for WTI and WTL grades of crude oil. Gray Oak is among the largest new conduits shipping from the U.S. Permian Basin to delivery points on the Gulf Coast.
Also, Enterprise Products Partners will give oil companies looking for places to store crude the chance to ship barrels on its 400,000-bpd Seaway pipeline from the U.S. Gulf Coast to Cushing, Okla.
The Seaway initially only transported to Cushing but was reversed in 2012 for exportation purposes. The available space, which will now be used to ship crude oil from southwest of Houston, Texas, to Cushing, had been unused capacity on the pipeline system.
Separately, at least one water and energy infrastructure company, Gravity Oilfield Services, is offering its assistance as well. The company, which owns tanks generally used as frack and mud tanks, is making storage available to operators for crude oil, following the drop-off in demand for those services.
“This is an industry that consistently goes through booms and busts, but no one has ever seen a bust like this before,” Warren said, quickly adding, “We’ve never had a situation where the bust wasn’t controlled by pricing.”
Pricing, of course, can be controlled by reducing supply, but the current historic lack of demand will be more difficult to adjust to, likely leading to a slow recovery.
“This is going to be brutal, probably through July,” Warren said, but predicted once underway, “it will come back very, very strong.”
So, in a state that prides itself on thinking big, at least for a little while, it might be the little things that matter most.
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