Rail, trucks can only dent Permian surge: Analysis

As Permian basin crude differentials widen and prospects for getting new production to US coastal markets narrow, discussions about a potential for growing rail and long-haul trucking have increased.

On paper a move from congested pipelines to rail and trucks makes sense, as steep West Texas Intermediate (WTI) premiums on the Texas coast could cover the cost of higher-priced transportation options. But as a number of refiners and midstream operators note, crude trains and tanker trucks cannot be activated with the flick of a switch.

Phillips 66 estimates the truck-short region would need 100 vehicles to move 10,000 b/d.

"It is not really realistic to expect to move 100,000 b/d or 200,000 b/d," Phillips 66 chief executive Greg Garland said in a recent earnings call. "It is just not really practical."

Plains All American Pipeline, a prime mover of crude around and away from the Permian, reiterated last week that there is not enough trucking capacity to address skyrocketing production, and potential rail slots are limited.

"Even if there were an enormous amount of trucks and it was operationally feasible to move them to the Gulf coast, you do not have enough drivers to do that," Jeremy Goebel, Plains' senior vice president of commercial, told investors on a call. "So that is another reason we have to constrain that view of crude oil production for this year and next."

"Constrain" is not what producers want to hear.

With about four potentially available rail terminals and trucking supply that has been tight for years just to transport oil, fuel, sand and other supplies within the basin — never mind out of it — Permian alternative takeaway capacity maxes out at 100,000-150,000 b/d, Plains said.

Of that, Plains expects up to 125,000 b/d moving on rails, including potentially its own terminal at McCamey, Texas. The remaining 25,000-50,000 b/d would move on trucks, but according to the latest US estimates of production from the basin growing by 70,000 b/d each month, trucks' share would account for no more than three weeks of new output.

With most material pipeline capacity additions a year or more away, Plains said the logical solution is slowing output, and it is already happening. Goebel estimates crews should be completing about 530 wells a month, but the number should stay well below 400 this year because of the bottleneck.