trending Market Intelligence /marketintelligence/en/news-insights/trending/D0Kou4Ug2AqYE4IjhfNQRQ2 content esgSubNav
In This List

Permian to Gulf Coast oil pipeline project on the rocks as partner bows out

Blog

Insight Weekly: Global stock performance; hydrogen pilot projects; Powell's Fed future unsure

Blog

Insight Weekly Labor market recovery hurdles power market integration nonbank MA hunt

Blog

Q&A: Q2'21 Power Forecast: Overheated Power Markets are Here – Who Wins, Who Loses, and Why?

Blog

ESG & Technology: Impacts and Implications


Permian to Gulf Coast oil pipeline project on the rocks as partner bows out

A key player in the Permian to Gulf Coast crude pipe project has lost confidence in the line's viability amid growing concerns about a looming midstream infrastructure overbuild in the region.

Magellan Midstream Partners LP said in a March 25 SEC filing that "it is unlikely that the ... project as initially announced will proceed," signaling the end of the partnership's participation in this joint venture project with MPLX LP, Energy Transfer LP and Delek US Holdings Inc. that had proposed carrying 600,000 bbl/d of crude oil from West Texas and New Mexico to Houston markets starting in mid-2020. As a result, Magellan also told the SEC it is decreasing 2019 and 2020 capital expansion spending by about $200 million and $250 million, respectively, "to reflect its previously expected share of the project."

Permian to Gulf Coast project participant Energy Transfer still plans to gauge interest for Permian oil takeaway capacity. "We will continue to pursue a project as per discussions with a number of customers and will move forward once we have sufficient commitments that would provide us with a very accretive project with long-term commitments," spokeswoman Alexis Daniel said in an email.

Magellan also said that it is looking at a project, but that "the probability of success is unknown at this time." MPLX and Delek US Holdings had not responded to requests for comment at the time of publishing, but Delek US did publish an updated investor presentation on March 26 that did not include the Permian to Gulf Coast project.

The joint venture may be focusing its energy on another project already in the works. Magellan President and CEO Michael Mears said in late January that joint venture was discussing the possibility of combining with a competing project under development by Exxon Mobil Corp., Plains All American Pipeline LP and Lotus Midstream LLC.

Analysts at energy investment bank Tudor Pickering Holt & Co. said Magellan's interest in a potential joint venture pipeline out of the Permian "would be possibly pairing up with the [1 million bbl/d Exxon-Plains-Lotus Wink to Webster] line for 2021," and that the Permian to Gulf Coast project's dwindling prospects were not surprising.

"Investor sentiment on the project was notably tempered in recent weeks given positive [final investment decision] and upsize of the competing ... Wink to Webster pipeline and softened management commentary from [Permian to Gulf Coast] equity partners," they wrote in a March 26 note to clients. "Reduction of capital likely viewed as a positive outcome for most partners given weak return expectations. ... [Permian to Gulf Coast] was widely viewed as a second-wave Permian pipe ... in an era with Permian [exploration and production companies] cutting budgets to focus on free cash flow."

Credit Suisse midstream analyst Spiro Dounis said Magellan's announcement is "positive for the industry to avoid over-piping the Permian" in a March 25 note to client.

Tudor Pickering Holt analyst Colton Bean in a recent interview estimated that there will be 6.3 million bbl/d of Permian pipeline capacity by the end of 2019. Wink to Webster and Permian to Gulf Coast would provide an additional 1.6 million bbl/d, but the investment bank only expects production to reach about 5.4 million bbl/d in 2021.

As recently as Magellan's Jan. 31 earnings call, Mears had said that the Permian to Gulf Coast pipeline "[continued] to advance with additional interest from new potential shippers," echoing similar comments from the project's partners.