Drillers Anxious for New Crude Pipelines in Permian Basin

Oklahoma oil and gas explorers like many others in the lucrative Permian Basin of West Texas and East New Mexico are learning it might be years before there’s pipeline relief in the oil-rich formation.

We’ve reported over the past several months whenever new pipelines or extensions of existing lines win approval. But billions of dollars in new lines are still pending and as Bernadette Johnson with Drillinginfo told the Dallas Morning News, “We can drill a well anywhere in the Permian in less than 30 days. We can bring that well online within a couple of months. It takes 18 months to bring on a new pipeline—it’s not a quick fix.”

And with the U.S. benchmark crude topping $70 a barrel in recent weeks, there’s a new sense of excitement and urgency among drillers to get as much oil flowing as possible. But their patience is being tested by a shortage of pipelines to push the crude from the Permian to the Gulf Coast refineries.

“Permian is going to be tough,” Johnson told the paper. “It’s going to have to come from somewhere else. And for that to happen, it probably needs a price higher than $70.”

Coming into play in the situation is the setting of the benchmark price for West Texas Intermediate crude which is done in Cushing.  The price is usually more than the price in Midland, Texas which is in the heart of the Permian Basin.  The Midland price accounts for transportation costs and sometimes there is as much as a $6 spread compared to the Cushing price.

In May that spread spiked as high as $12.75, a clear sign that drillers’ inability to move oil out of the Permian Basin was creating excess supply and pulling down the Permian price.