Two words have defined the North American oil and gas challenge in the last two years: takeaway constraints.

The midstream has responded with two words of its own: on it.

Construction activity—and plans for more—have gravitated toward the Permian Basin and Gulf Coast but the LNG Canada announcement—a $31 billion project—grabbed the most attention as the fourth quarter began.

Permian Basin
Production capacity in the Permian Basin will outpace takeaway capacity by 46,000 barrels per day (Mbbl/d) in fourth-quarter 2018, Stratas Advisors projected in September. Things will get worse before they get better. No major pipeline projects are expected to come online until fourth-quarter 2019, which will expand the gap between production and takeaway to an average of 371 Mbbl/d from first-quarter 2019 through the end of next year’s third quarter.

Stratas expects producers to either ease up on adding rigs or turn to trucks and rail to move the crude to key markets.

“A third possibility could be the use of additional pumping and drag reducing agents (DRAs) on pipeline,” the analysts wrote. “The use of DRAs reduces turbulence on the pipeline, thus increasing its capacity by as much as 100 Mbbl/d.”

That sentiment is echoed by Marshall McCrea, chief commercial officer of Energy Transfer Partners LP, which plans to expand capacity of its Permian Express 3 pipeline by 100 Mbbl/d. “Everywhere we possibly can use DRA across the country, we are,” he said.

What works for Plains All American Pipeline LP is finishing projects ahead of schedule. Executives said in the third quarter that the Sunrise expansion project is expected to go into partial service in the fourth quarter and its Cactus II line will begin partial service from Wink, Texas, to McCamey, Texas, in third-quarter 2019.

The Sunrise extension will add about 500 Mbbl/d of capacity from Midland, Texas, to Colorado City and Wichita Falls, Texas, and provide connections to the Cushing, Okla., crude trading hub. The Cactus II Pipeline will provide 670 M bbl/d of capacity from the Permian to Corpus Christi, Texas, when it runs at full service in April 2020.

The “sooner the better” mantra was shared by EPIC Midstream Holdings LP. In early October, the company announced its subsidiary had cleared the approval process to begin crude oil service on a portion of the EPIC NGL Pipeline when that project is completed in third-quarter 2019. Customers clamoring for crude transport out of the Permian convinced EPIC to utilize the third and final phase of its NGL line from Crane, Texas, to Corpus Christi for crude service while the EPIC Crude Oil Pipeline and EPIC NGL fractionator are being built. The NGL pipe will revert to NGL service when EPIC’s crude line is completed by January 2020.

The portion of the NGL line to be placed into crude service will originate in Crane with an additional injection point in Wink and will have multiple terminal and refinery connections in Corpus Christi and Ingleside, Texas. It will have a capacity of 400 Mbbl/d for its interim crude service.

Also attending to NGL demand is ONEOK Inc., which plans to invest about $295 million in an expansion project for its 2,600-mile West Texas LPG pipeline system. The line moves NGL from 40 processing plants in the basin to the Mont Belvieu, Texas hub.

The expansion involves construction of four new pump stations; two pump station upgrades and pipeline looping that will increase mainline capacity by 80 Mbbl/d. Additional infrastructure will connect the line with ONEOK’s 530-mile Arbuckle II NGL pipeline project that moves Oklahoma supply to Mont Belvieu.

The proposed Whistler Pipeline Project, a joint venture with four partners, will transport 2 billion cubic feet per day (Bcf/d) of gas from the Midland and Delaware basins to Gulf Coast markets when it enters service in fourth-quarter 2020. Partners include Targa Resources Corp., NextEra Energy Pipeline Holdings LLC, WhiteWater Midstream LLC and MPLX LP.

It’s an ambitious project incorporating about 450 miles of 42-inch pipeline from the Permian’s Waha, Texas, gas hub to NextEra’s Agua Dulce, Texas, market hub , with about 170 miles of 30-inch pipe continuing from Agua Dulce and terminating in Wharton County, Texas. Whistler would have access to the Nueces Header and Agua Dulce markets, as well as along a northern extension through Corpus Christi to the Houston Ship Channel.

But it’s not all about the pipes. Cogent Midstream LLC’s new lower Midland Basin refrigerated cryogenic processing plant—Big Lake II in Reagan County, Texas—will boast capacity of 200 million cubic feet per day (MMcf/d) when it opens in fourth-quarter 2019. The high-efficiency UOP Russell plant is capable of high recovery rates for NGL including ethane and propane.

Salt Creek Midstream LLC and Noble Midstream Partners LP have formed a 50:50 joint venture to build a pipeline and gathering system in the Delaware Basin. Construction is underway, with operations expected to begin in second-quarter 2019. The project will provide access to 200 Mbbl of new crude storage with the possibility to expand to 300 Mbbl.

Gulf Coast
Contanda Terminals LLC announced in August that it would add a third Houston-based bulk liquid storage facility to its lineup with construction of a 3 million barrel (MMbbl) terminal at Jacintoport on the Houston Ship Channel.

The automated facility will provide petrochemical and hydrocarbon storage capacity, a deep-water ship dock and two barge docks, as well as truck and rail infrastructure. It is expected to be completed in fourth-quarter 2019.

Tallgrass Energy LP is developing two projects along the Louisiana coast. One isthe 700-mile Seahorse Pipeline that will connect the St. James, La., refining complex to Cushing; and the other is the Plaquemines Liquids Terminal, a joint development with Drexel Hamilton Infrastructure Partners LP, which will be handle 1 MMbbl capacity Post-Panamax vessels.

The terminal is permitted for up to 20 million barrels of storage and is scheduled to be in service in second-quarter 2020. Tallgrass will likely build a separate offshore pipeline extension that would allow the terminal to load very large crude carriers (VLCCs) by third-quarter 2021.

Another company looking to construct a deepwater port is global trading firm Trafigura, which applied for building permits on the Texas Gulf Coast. Trafigura said the project will be close to Corpus Christi and include a new onshore terminal that will be fed by a pipeline.

Enterprise Products Partners LP is engaged in a building spree along the coast:

  • A 150 Mbbl/d NGL fractionator under construction will increase the company’s Mont Belvieu complex capacity to 905 Mbbl/d;
  • A 100 Mbbl/d expansion of the company’s Seaway Pipeline (Cushing to the Gulf Coast) will boost capacity to 950 M bbl/d; and
  • A 175 Mbbl/d expansion at the Enterprise Hydrocarbon Terminal on the Houston Ship Channel will raise the facility’s capacity to 5 MMbbl/d and export capacity to 21 MMbbl/d.

Enterprise said it would use DRAs to bolster Seaway’s capacity and was considering converting NGL pipelines to crude oil to help alleviate takeaway constraints in the Permian. The hydrocarbon terminal’s expansion will increase loading capability for propane and butane. Enterprise is already the world’s leading propane exporter.

Flint Hills Resources LLC announced plans in September to expand storage and outbound crude loading capacity at its terminal in Ingleside near Corpus Christi. The company plans to build four crude storage tanks plus the associated pumps and piping. Flint Hills expects the project to be in service in October 2019. The company said it is also evaluating a separate project that would allow it to load VLCC-sized vessels.

Also in September, French supermajor Total made good on its promise to be a player in the U.S. polyethylene market when it finalized plans to double capacity of its Texas Bayport Polymers facility to 1.1 million tonnes per year. McDermott will handle engineering for the plant, which is expected to begin processing ethane in 2021.

Marcellus-Utica
Selected major projects in Appalachia are past the “getting started” phase and moving toward startup.

TransCanada Corp. received approval from the Federal Energy Regulatory Commission (FERC) to place part of its $900 million WB Xpress natural gas pipeline into service in West Virginia. The pipeline, with capacity of 1.3 Bcf/d, will help ease constraints in the region.

The Williams Cos. Inc. also gained FERC’s OK in early October to put the $3 billion Atlantic Sunrise gas pipeline into service. The 1.7 Bcf/d line runs from Pennsylvania to South Carolina.

Williams’ Leidy South expansion project moved forward by accepting commitments by Seneca Resources Co. LLC and Cabot Oil & Gas Corp. for full capacity of 580 million dekatherms per day when it begins operations in fourth-quarter 2021.

Denver-Julesburg Basin/Eagle Ford
Taproot Energy Partners LLC’s affiliate, Taproot Rockies Midstream LLC, covered all bases with its August announcement of a multiproduct midstream system in central Weld County, Colo. The project will incorporate natural gas, crude oil and produced water gathering, natural gas treating and processing, and fresh water supply.

Construction is ongoing and all four systems are scheduled to be completed in fourth-quarter 2018. The company’s gas gathering system is anticipated to provide high recovery rates for NGL.

Phillips 66 Partners expects to begin service on its Gray Oak Pipeline, which runs from the Helena Hub and Three Rivers terminal in the Eagle Ford to the Corpus Christi and Sweeny/Freeport markets, by year-end 2019. The company held an open season for the Eagle Ford segment that began in September.

Canada
Six partners are providing the investment, but LNG Canada—a massive $31 billion project on the country’s West Coast at Kitimat, British Columbia—is arguably fueled by rising energy demand from Asia, particularly China. Stakeholders Royal Dutch Shell Plc, Malaysia’s Petronas, PetroChina Co. Ltd., Korea Gas Corp. and Japan’s Mitsubishi Corp. all made final investment decisions in October.

First gas from the project is expected before 2025. Global demand is expected to double by 2035 and the terminal at Kitimat, British Columbia, will provide a more direct route to Asia than facilities on the U.S. Gulf Coast. The project includes construction of TransCanada’s Coastal GasLink Pipeline, which will transport gas from the Montney play to Kitimat.

Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.

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