While concern about overbuild of pipeline capacity in the oil-rich Permian Basin exists in the near future, the growing supply of crude from the hottest U.S. shale basin will make it necessary for extra takeaway capacity by the end of the next decade, according to research from Wood Mackenzie.

Wood Mackenzie’s research is forecasting more pipeline investment will be needed before the 2030s hit because up to 500,000 additional barrels per day (bbl/d) of oil will need to be transported to market to ease the bottlenecking that has become synonymous with the Permian Basin. As a result, midstream companies should get ready to build at least one more major pipeline out of the Permian to Gulf Coast markets, said John Coleman, Wood Mackenzie’s principal analyst of North America crude markets.

“The narrative right now is focused very much on the short term, there will be excess capacity,” Coleman told HartEnergy.com. “What we want to do is highlight that we agree with that in the short term. But longer term, looking beyond the next five years, we do expect growth to continue moving forward with that driving the need for either one new build from the Permian to the Gulf Coast market or expansion probably across multiple systems.”

Despite the forecasted demand, Coleman added he expects the Permian Basin will still see a moderate overbuild coming in the early 2020s as the current wave of pipeline investments get completed.

The current infrastructure investment boom—one of the largest in U.S. history—includes seven proposals for new Permian pipelines, four of which have ultimately reached final investment decision. These are expected to move an additional 4 million barrels per day (MMbbl/d) of oil capacity bound for the U.S. Gulf Coast by the end of 2022. More than 2 MMbbl/d of that new capacity will make its way to the Corpus Christi market for export, according to Wood Mackenzie.

The global natural resources consultancy firm predicts two to three years of overbuild from the rapid increase in capacity as pipelines come online before the normal long-haul capacity supply and demand conditions re-emerge. U.S. Gulf Coast-bound capacity will tighten as production growth expands well in the 2030s.

However, Coleman said if pipeline isn’t expanded in the Permian by the mid-2030s, takeaway capacity will become a major concern again. He expects without more investment, the Permian-to-Gulf Coast pipelines will surpass 92%. That will make it necessary for pipeline expansions or greenfield capacity, he added.

The Permian Basin, which covers 75,000 square miles in West Texas and southeastern New Mexico, has benefited from improvements in technology that made it possible to increase oil extraction from shale formations. Currently, the U.S. is the largest oil producer in the world as it’s pumping 12.1 MMbbl/d, led by production out of the Permian.

Wood Mackenzie has production in the Permian peaking at around 7.1 MMbbl/d by the late 2020s or early 2030s. Though, the firm’s forecast differs with predictions from another analyst with the Bank of America Merrill Lynch of production tripling to 9 MMbbl/d in the next three years during a time of concern of overbuild.

Coleman didn’t discount other analysts but stuck by Wood Mackenzie’s forecast.

“You will see a number of different forecasts out there,” he said. “Some are very much more bullish than ours; some might even be less than ours. We try to [weigh] a number of factors and that is how we come out with our roughly 7 MMbbl/d number.”

Terrance Harris can be reached at tharris@hartenergy.com.

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