Viewpoint: Lighter Permian oil prompts new stream

Increased lighter crude production from west Texas and New Mexico has prompted new infrastructure to accommodate a segregated stream, sometimes referred to as West Texas Light (WTL).

New production from the Delaware formation of the Permian basin is trending lighter, limiting the amount of West Texas Intermediate (WTI) that can be blended. So crude of varying quality is combined to meet WTI pipeline specifications.

WTI requirements can vary slightly from pipeline to pipeline, but in practice the oil shipped is typically toward the lighter end of the allowable range, which for most lines cuts off at 44˚API gravity. For example, the Longhorn and BridgeTex pipeline specifications for WTI include gravity between 36˚-44˚API, but deliveries to Magellan's East Houston terminal have averaged 42.45˚APImonthly from June to November.

When more light crude is produced than can be blended to meet specifications, it needs to be segregated.

Batching the lighter production is not something new. Plains All American Pipeline has said that it moved segregated batches from the Permian to Corpus Christi on the Texas coast since April 2017, with the most common segregation in the 45˚-50˚API range. Plains has also shipped batches from Midland to Magellan's East Houston terminal by way of the BridgeTex and Longhorn pipelines, requiring segregated storage at both ends.

But the increase in lighter production is prompting new pipeline tariffs to include a lighter crude specification, falling between WTI and condensate but with varying dividing lines. Oil that would now be considered WTL may have been referred to as condensate previously.

One line that can ship the lighter crude is Enterprise Products Partners' new 575,000 b/d Midland-to-Sealy pipeline that carries crude for delivery to Houston. Its tariff contains specifications for "West Texas Light Sweet" from 44.1˚-49.9˚API gravity.

Plains' 500,000 b/d Sunrise pipeline expansion from Midland to Cushing started up in November. It is currently moving 300,000-350,000 b/d from Midland to Wichita Falls, with only about 220,000 b/d of that reaching Cushing. The line has tariffs from Loving County, Texas, to Cushing for four common streams, including one with 45˚-47.9˚API gravity — falling between WTI and condensate.

A WTL spot market has been slow to emerge although market sources say the segregated crude is shipping. Most discussion heard in the spot market for WTL has been for delivery at Enterprise's Midland terminal, with most recent bids and offers at a $1.50 and $0.25/bl discount to WTI Midland. Actual spot discussion has been scarce. Market sentiment suggests it is valued in Midland at a discount to the Argus WTI Midland price between roughly $1/bl and the midpoint of spot market discussion.

Volumes are heard to be sold predominantly at a discount to the Argus WTI Midland trade month average, on an "evergreen" basis, or on month-to-month terms.

But market participants predict WTL spot activity will increase as production rises and new pipelines are built, but large hikes are not expected to begin to come on line until mid-2019 or the third quarter.

In mid-2019, Enterprise plans to convert a natural gas liquids (NGL) pipeline to carry 200,000 b/d of crude from the Permian to Houston. In the third quarter, Plains' 670,000 b/d Cactus 2 pipeline project is expected to start partial service to the Corpus Christi area. And Epic Midstream is temporarily converting its 400,000 b/d NGL pipeline to crude conversion in the third quarter, from west Texas to Corpus Christi.