Enterprise touts rebounds for crude demand, Permian production

Houston — Enterprise Products Partners sees global crude oil demand and the Permian Basin's output rebounding -- especially from private producers -- and the Houston midstream giant is looking to revive its plans to export crude from a deepwater Texas terminal.

Enterprise co-CEO Jim Teague said May 3 he sees US gasoline demand becoming healthy again, and global oil demand should recover to 100 million b/d by the end of 2021 and go higher next year.

"Traffic is already back to what some term as awful," Teague said of Houston highways during the earnings call. "For the first time, I see traffic jams as beautiful."

Bullish on oil demand

Even with the coronavirus pandemic surging in countries like India, Teague said he is optimistic as the US, the European Union and others help with vaccine rollouts in struggling nations.

"Are we going to see all-time highs in 2022?" Teague said of global oil demand. "It could happen. I'd be surprised if it didn't."

Citing front-month NYMEX WTI's historic dip into negative pricing territory last spring, Teague said: "We're bullish. When you look at it, oil has gone up damn near $100/b from last April."

Enterprise's crude oil pipeline transportation volumes of 1.9 million b/d for the first quarter are still down from 2.4 million b/d in the first three months of 2020, but Teague said he sees the recovery as ongoing. Buoyed by gains in NGLs and petrochemicals, Enterprise's quarterly net income only dipped to $1.36 billion compared with $1.38 billion in the first quarter of 2020 before the effects of the pandemic had sunk in.

Spending by private producers

Even though the Permian Basin has an admitted glut of crude pipeline capacity, Enterprise executives said the Permian is and will remain the crown jewel basin. And more private producers ramping up activity are helping to make up for the hesitancy of their publicly traded counterparts to hike their capital spending.

"The Permian is leading everything," Teague said. "The challenge is every other basin, if you think about oil, is lacking. It's really all about the Permian."

Chief Commercial Officer Brent Secrest added, "We've probably done more deals with privates in the last nine months than we've done in the last nine years."

Permian decisions

Permian Basin crude production peaked early in 2020 at about 4.8 million b/d before briefly plummeting to below 4 million b/d during the height of pandemic-related lockdowns. The US Energy Information Administration projects Permian production back up to nearly 4.47 million b/d in May.

At the same time, Permian crude pipeline capacity is already above 6 million b/d after rapid growth in recent years and should exceed 7.5 million b/d once the ExxonMobil-led Wink-to-Webster system is online in Q3 2021, according to S&P Global Platts Analytics.

There is increasing talk -- but not yet action -- of repurposing some Permian crude pipelines for other products, even carbon dioxide.

"We're not going to announce a CO2 pipeline out of the Permian today, but who knows down the road," said Teague, a CEO who denies there is an "energy transition," but rather an "evolution."

"We're looking at repurposing for sure, and I think we'll see more of that," he said.

Oil-exporting platforms

Enterprise is even interested in reviving the dormant race to build oil-exporting platforms offshore of the Texas Gulf Coast. Enterprise's planned Sea Port Oil Terminal, called SPOT, could see movement on federal regulatory approvals this fall, and Enterprise is interested in new joint venture partnerships on the project.

"I think we're happy with where it is," Teague said. "We're also in discussions with some other companies as to coming in as joint venture partners, and it wouldn't surprise me if we didn't do that."

Enterprise already has a tentative partnership with Enbridge on SPOT, which would be built offshore of the Houston Ship Channel.

The offshore oil terminal projects are designed to fully load VLCCs so they would no longer need to partially fill up at onshore terminals and then receive the rest of their volumes offshore via reverse lightering.

With US crude exports still sitting below 3 million b/d because of the pandemic's effects on demand, SPOT is no longer seen as necessary to help meet crude export demand. Instead, Enterprise officials acknowledged much of SPOT's business would come from stealing business from existing onshore terminals. Producers want the best way to export their crude, even if crude export capacity is currently overbuilt, co-CEO Randy Fowler said.

Big players' ties to Houston region

Much of what is in Enterprise's favor longer term is that the two largest Permian players, ExxonMobil and Chevron, are tied to the Houston region.

ExxonMobil will have Wink to Webster, while both big oil players have their refining and petrochemical hubs in the Houston area. Likewise, Chevron is contracted as the anchor customer for SPOT to export crude.

"SPOT -- that's the most efficient way to get crude oil to the water," Fowler said.