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Energy Transfer & Others Unite for Permian Pipeline Project


Pipeline constraints in the prolific Permian play have opened a window of opportunity for the midstream companies to build new projects or expand the existing ones. In this regard, major pipeline operators Energy Transfer Partners LP ETP and Magellan Midstream Partners, LP MMP have teamed up with Delek U.S. Holdings, Inc. DK and midstream arm of Marathon Petroleum Corporation, MPLX LP MPLX to construct a new multi-billion-dollar pipeline project.

Energy Transfer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Energy Transfer Partners, L.P. Price

Energy Transfer Partners, L.P. Price | Energy Transfer Partners, L.P. Quote

The 600-mile long pipeline will aid in oil transportation from the Permian basin to the Gulf Coast region. The carrier will transport oil to both Energy Transfer’s Nederland terminal and Magellan’s East Houston terminal, for final delivery to refining and export hubs in Houston, Corpus Christi and Beaumont. The pipeline is likely to have an initial takeaway capacity of 600,000 barrels a day (bpd), expandable to a million bpd. The pipeline, which has already secured enough shipping commitments, will conduct an open season for obtaining additional shipper commitments in the next few days. Subject to regulatory and board approvals, the project is estimated to come online by mid-2020.

Other Permian Pipeline Projects in the Horizon

Notably, with production growth on a tear in the Permian Basin, pipelines of the region are under immense pressure. In fact, expanding volumes have begun to outstrip the pipeline takeaway capacity of the Permian Basin, forcing the operators to accept steep discounts on their produce. While the latest Permian dilemma is inducing deflated regional oil prices, which are likely to hurt the upstream explorers, it has prompted a race among the midstream companies to invest in pipelines for ensuring a facile flow of crude from the Permian region.

Epic Midstream Holdings LLC has formed strategic partnerships with Apache Corporation and Noble Energy Inc. for a 730-mile crude oil pipeline, running from Permian to Corpus Christi. The pipeline, with a capacity of up to 675,000 barrels of oil per day, is likely to serve the Delaware and Midland portions of the Permian Basin. While the construction of the Epic Crude Oil Pipeline is likely to commence in the fourth quarter of 2018, the facility is expected to come online during the second half of 2019.

To help de-bottleneck the oil flow from Permian, Plains All American Pipeline is also fast-tracking two of its important projects in the region. The Sunrise Extension endeavor is expected to become functional at partial capacity by this year-end whereas its second major project, Cactus Pipeline II, with a takeaway capacity of around 670,000 bpd, will become fully operational by the end of the first quarter of 2020.

Moreover, Magellan Midstream intends to build a new pipeline, with a capacity of at least 350,000 bpd, to assist in the transportation of oil from Permian. The project is anticipated to come into service post mid-2019. The company is already an operator of BridgeTex and Longhorn pipeline, which ships barrels from Permian to Houston Ship Channel. Moreover, it is targeting the expansion of its BridgeTex pipeline by 2019.

Phillips 66 Partners’ and Andeavor’s Gray Oak Pipeline is also expected to become functional in late 2019, with a capacity of up to 1 million of barrels per day. Notably, ExxonMobil is likely to invest around $2 billion in transportation infrastructural expansion in Permian to successfully transport its output to the Gulf Coast. Just recently, Kinder Morgan, Inc. also made a final investment decision on its $2 billion Permian pipeline project.

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