Business operations can be costly, especially in the volatile energy sector where costs continue to mount and the price of crude oil rapidly drops. This development creates opportunities to maximize capital efficiency by merging operations with competitors.
In the Texas Permian Basin, Marathon Petroleum has entered preliminary discussions with Exxon Mobil and Plains All American Pipeline of Houston to combine efforts on a pipeline to flow from the basin to the Gulf Coast. If the new project gets a greenlight from all parties, Houston-based Marathon Petroleum would exit the PGC pipeline project and pivot to work with Exxon and Plains.
The PGC project is a 600-mile pipeline designed to transport oil from the Permian Basin to the Gulf Coast, including Marathon’s refineries in Galveston Bay and Texas City. Marathon’s project partners are Dallas-based Energy Transfer, Oklahoma-based Magellan Midstream Partners and Delek Group, an Israeli company. The multibillion dollar pipeline project was expected to start in the fourth quarter of 2020.
Ohio-based Marathon will pursue discussions on both projects, according to a statement during Tuesday’s investor webcast by Don Sorensen, Marathon’s head of Andeavor Logistics.
In June, Exxon announced it would create a joint venture with Plains All American to construct a multibillion-dollar pipeline stretching from west of Midland to the Houston and Beaumont areas. The one million barrel a day pipeline is expected to be operational in late 2020 or early 2021.
It follows a similar route to the pipeline developed by Marathon with Energy Transfer, Magellan and Delek.
Despite record production from the Permian Basin, more pipelines are needed to carry the crude to the market. Energy companies are attempting to solve the supply and demand issue by creating new pipelines.
Until those projects start coming online in mid-2019, companies are relying more on traditional transportation — trucks and trains — to move the crude to the Gulf Coast markets. Pricing is an important issues since Permian crude is selling at a discount in Midland due to getting it to Gulf Coast markets.
Texas businesses are budgeting more than $40 billion to build or expand nearly 10,000 miles of pipelines.