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Permian crude volumes surge despite supply chain hindrances: NuStar

Highlights

Frack crew, supply chain shortages slow growth

More bullishness on growth in 2023

  • Author
  • Jordan Blum    Starr Spencer
  • Editor
  • Bill Montgomery
  • Commodity
  • Natural Gas Oil

Crude oil volumes out of the Permian Basin are still rising to new highs despite supply chain issues and continued capital discipline from publicly traded producers, midstream CEOs said during a series of earnings calls.

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NuStar Energy said May 5 its first-quarter Permian crude volumes averaged 510,000 b/d, which is a massive 27% spike over the same period last year. NuStar CEO Brad Barron said the Permian flows could exit 2022 at 570,000 b/d and easily exceed 600,000 b/d in 2023.

"Our well-positioned Permian crude system, located in some of the most active counties of the basin, continues to outpace the production growth of the Permian Basin as a whole," Barron said. "We are encouraged by what they [customers] are telling us, particularly our privately held customers, about their drilling plans for the rest of 2022."

Total Permian crude volumes are estimated at a record high of 5.14 million b/d in May, according to the US Energy Information Administration, although the ramp up this year has come slower than projected.

Jump in volumes seen in 2023

In 2023, S&P Global Commodity Insights projects Permian volumes to average nearly 5.8 million b/d and approach the 6 million b/d threshold by the end of the year. As for total US crude production, S&P Global sees volumes averaging 12.25 million b/d in 2022 -- up from 11.9 million b/d currently -- and new highs of 13.16 million b/d in 2023.

Despite the record-breaking volumes, S&P Global Commodity Insights highlighted the underperformance to expectations in the Permian because of ongoing labor shortages and supply-chain constraints, as well as winter-related disruptions early in the year. Workforce shortages, especially in the services sector, have kept the number of active frack crews relatively flat. The drilling rig activity continues to grow, resulting in lower completion rates and a rise in drilled, but uncompleted, well inventories.

After some early projections that total US crude oil volumes would spike by 1 million b/d in 2022, Pioneer Natural Resources CEO Scott Sheffield said May 5 he expected production to rise by 500,000-600,000 b/d this year instead.

"I think too many think-tank firms are way too high on US production," Sheffield said. "And, then, you put on top of it what's happening now in regard to labor constraints, frac fleet constraints, inflation constraints. I just think it's going to be tough to hit some of the numbers. So it even makes me even more bullish about some of the oil price numbers that are out there."

As for NuStar, Barron said the Permian supply chain issues may take until late 2022 or even 2023 to really get sorted out.

NuStar's total crude and products pipeline volumes jumped 16% in the first quarter versus the first three months of 2021, from 1.61 b/d of oil equivalent up to 1.87 boe/d. The total crude volumes rose 19% to 1.31 million b/d, while refined products volumes jumped 11% to 563,000 boe/d.

Volumes climb for Plains, Energy Transfer

Both Plains All American Pipeline and Energy Transfer reported significantly higher crude volumes out of the Permian as well, especially when counting barrels from Plains' new Plains Oryx Permian Basin JV with Oryx Midstream.

Including the new joint venture, Plains' quarterly crude oil volumes of 7.16 million b/d rose from 5.43 million b/d in the first quarter of last year. Just in the Permian, Plains reported quarterly volumes of 5.21 million b/d, up from 3.75 million b/d.

"We expect US shale production, led by the Permian, will continue to be crucial to supplying and meeting global energy demand," Plains CEO Willie Chiang said in the company's May 4 earnings call.

Chiang said Plains expects Permian volumes to grow by almost 600,000 b/d per year, hitting 7 million b/d in 2025 and triggering tight crude takeaway capacity by then.

Plains Chief Commercial Officer Jeremy Goebel said Permian volumes spiked in late 2021 and then growth stalled out early this year -- partly due to weather issues -- before picking back up in March and continuing well into the second quarter.

"We've seen that cadence increase as you exit the first quarter and into the second," Goebel said. "And it's largely driven by private operators and integrated, but the independents are talking about total production profile. So they are declining in other areas and growing in the Permian."

Likewise, Energy Transfer reported 4.22 million b/d of crude pipeline volumes in the first quarter, well up from 3.54 million b/d in the year prior, with growth primarily in the Permian but also in the Bakken Shale, including the Dakota Access Pipeline.