Crude oil held in pipelines (pipeline fill) in the United States grew from 75 million barrels in March 2011, the earliest data available, to nearly 124 million barrels in September 2019, a 64% increase, according to the U.S. Energy Information Administration’s (EIA) Working and Net Available Shell Storage Capacity report (Figure 1). The increase is due to the significant expansion of the U.S. crude oil pipeline system over that period. Almost 97% of the 48 million barrel increase in crude oil pipeline fill, which includes some volumes of crude oil in transit via water and rail, occurred in the Gulf Coast (Petroleum Administration for Defense District, or PADD, 3) and the Midwest (PADD 2).
Pipelines are the primary method of transporting crude oil in the United States. The increase in U.S. crude oil production in recent years has required the construction of new pipelines and reconfiguration of existing pipelines, including the conversion of natural gas pipelines to crude oil pipelines. The Gulf Coast region, which was responsible for 70% of the growth in U.S. crude oil production between 2010 and 2018, has experienced the largest pipeline buildout during that time period. The Permian Basin, covering West Texas and southeastern New Mexico, contributed the most to crude oil production growth and supported higher crude oil inventories in the region, including increased pipeline fill.
According to EIA’s Liquid Pipeline Projects Database, more than 100 crude oil pipeline projects were completed between March 2011 and September 2019. During this time, about 90% of projects were located in either the Gulf Coast or Midwest regions (Figure 2). The most prevalent project types were pipeline expansions and new pipeline builds. The vast majority of the projects were for transporting crude oil within their respective regions.
Many pipeline expansions increased crude oil takeaway capacity from producing regions. For example, in 2018, Enterprise Products Partners L.P.’s 418-mile Midland-to-Echo 1 Pipeline System was placed into service to transport crude oil from the Permian Basin to locations near Houston, Texas. Other Permian Basin projects completed in 2018 included Plains All American’s Sunrise Pipeline Expansion and Enterprise Products Partners L.P.’s new Loving County Pipeline. The Sunrise Pipeline Expansion transports crude oil from the Permian region to Cushing, Oklahoma, and destinations in the Gulf Coast and the Loving County Pipeline transports crude oil from Permian Basin fields in New Mexico to Midland, Texas, a crude oil supply hub.
About 64% of crude oil production, 52% of U.S. petroleum refining capacity (measured by operable distillation capacity), and 52% of crude oil storage is located in the Gulf Coast (Figure 3). Rising Permian crude oil production decreased crude oil imports, and increased demand for crude oil at petroleum refineries have coincided with several projects aimed at increasing crude oil pipeline deliveries to Gulf Coast refineries. For example, the 264-mile Kinder Morgan Crude & Condensate Pipeline (KMCC), which includes a converted 109-mile natural gas pipeline, initiated deliveries of crude oil and condensate from the Eagle Ford region to Houston in 2012. Kinder Morgan later included a 27-mile lateral to Phillips 66’s refinery in Old Ocean, Texas. In 2014, TC Energy’s Keystone Gulf Coast Expansion was placed into service to supply refineries in Port Arthur, Texas.
In the Midwest, Cushing, Oklahoma—a key crude oil storage hub—has experienced significant increases in crude oil pipeline capacity as new crude oil tank farms were built to handle rising supplies. Crude oil working storage capacity in Cushing rose 59% between March 2011 and September 2019 to reach 76 million barrels. Cushing receives large volumes of crude oil by pipeline and rail from various areas such as Canada and the Rocky Mountains (PADD 4). For example, TC Energy’s 2014 expansion of the Keystone Pipeline transports crude oil that originated in Alberta, Canada, to Gulf Coast refineries via Cushing. Several additional pipeline projects that entered service between 2014 and 2018 were designed to move crude oil from the Rocky Mountains, which includes the Bakken formation, to Cushing.
Growing crude oil exports have also supported increases in crude oil pipeline capacity. The removal of restrictions on U.S. crude oil exports at the end of 2015, combined with higher crude oil production, allowed an increase in crude oil exports in the Gulf region, which grew from 3,000 barrels per day (b/d) in 2010 to 1.8 million b/d in 2018. Petroleum terminals in the Gulf Coast that once imported large volumes of crude oil now load crude oil tankers for export to international destinations. Enterprise Products Partners L.P. recently completed an expansion to its Midland-to-Sealy Pipeline and conversion of its Seminole Red Pipeline to service the Enterprise Crude Houston (ECHO) terminal, a facility where shippers can load U.S. crude oil for export.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell more than 1 cent from the previous week to $2.56 per gallon on December 9, 14 cents higher than the same time last year. The West Coast price fell 7 cents to $3.34 per gallon, the Rocky Mountain price fell nearly 3 cents to $2.79 per gallon, and the Gulf Coast price fell more than 2 cents to $2.20 per gallon. The East Coast and Midwest prices remained unchanged at $2.48 per gallon and $2.42 per gallon, respectively.
The U.S. average diesel fuel price fell more than 2 cents from the previous week to $3.05 per gallon on December 9, 11 cents lower than a year ago. The West Coast price fell by nearly 6 cents to $3.65 per gallon, the Rocky Mountain price fell by more than 3 cents to $3.21 gallon, the Gulf Coast price fell by 2 cents to $2.76 per gallon, the Midwest price fell by nearly 2 cents to $2.97 per gallon, and the East Coast price fell by nearly 1 cent to $3.05 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 1.7 million barrels last week to 93.5 million barrels as of December 6, 2019, 7.4 million barrels (8.6%) greater than the five-year (2014-18) average inventory levels for this same time of year. Gulf Coast and Rocky Mountain inventories increased by 3.3 million barrels and 0.1 million barrels, respectively. Midwest and East Coast inventories decreased by 1.1 million barrels and 0.6 million barrels, respectively. Propylene non-fuel-use inventories represented 5.8% of total propane/propylene inventories.
Residential heating oil prices increase, propane prices decrease
As of December 9, 2019, residential heating oil prices averaged almost $3.02 per gallon, more than 1 cent per gallon above last week’s price but more than 18 cents per gallon below last year’s price at this time. Wholesale heating oil prices averaged nearly $2.07 per gallon, more than 2 cents per gallon higher than last week’s price and more than 7 cents per gallon higher than a year ago.
Residential propane prices averaged more than $2.02 per gallon, almost 1 cent per gallon lower than last week’s price and nearly 42 cents per gallon less than a year ago. Wholesale propane prices averaged more than $0.83 per gallon, more than 7 cents per gallon lower than last week’s price and nearly 8 cents per gallon below last year’s price.
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This winter, natural gas prices have been at their lowest levels in decades. On Monday, February 10, the near-month natural gas futures price at the New York Mercantile Exchange (NYMEX) closed at $1.77 per million British thermal units (MMBtu). This price was the lowest February closing price for the near-month contract since at least 2001, in real terms, and the lowest near-month futures price in any month since March 8, 2016, according to Bloomberg, L.P. and FRED data.
In addition, according to Natural Gas Intelligence data, the daily spot price at the Henry Hub national benchmark was $1.81/MMBtu on February 10, 2020, the lowest price in real terms since March 9, 2016. Henry Hub spot prices have ranged between $1.81/MMBtu and $2.84/MMBtu this winter heating season (since November 1, 2019), generally because relatively warm winter weather has reduced demand for natural gas for heating. Natural gas production growth has outpaced demand growth, reducing the need to withdraw natural gas from underground storage.
Dry natural gas production in January 2020 averaged about 95.0 billion cubic feet per day (Bcf/d), according to IHS Markit data. IHS Markit also estimates that in January 2020 the United States saw the third-highest monthly U.S. natural gas production on record, down slightly from the previous two months.
IHS Markit estimates that U.S. natural gas consumption by residential, commercial, industrial, and electric power sectors averaged 96 Bcf/d for January, which was about 4.4 Bcf/d less than the average for January 2019, largely because of decreases in residential and commercial consumption as a result of warmer temperatures.
However, IHS Markit estimates that overall consumption of natural gas (including feed gas to liquefied natural gas (LNG) export facilities, pipeline fuel losses, and net exports by pipeline to Mexico) averaged about 117.5 Bcf/d in January 2020, an increase of about 0.2 Bcf/d from last year. This overall increase is largely a result of an almost doubling of LNG feed gas to about 8.5 Bcf/d.
Because supply growth has outpaced demand growth, less natural gas has been withdrawn from storage withdrawals this winter. Despite starting the 2019–20 heating season with the third-lowest level of natural gas inventory since 2009, by January 17, 2020, working natural gas inventories reached relatively high levels for mid-winter. The U.S. Energy Information Administration’s (EIA) data on natural gas inventories for the Lower 48 states as of February 7, 2020, reflect a 215 Bcf surplus to the five-year average. In EIA’s latest short-term forecast, more natural gas remains in storage levels than the previous five-year average through the remainder of the winter.
According to the National Oceanic and Atmospheric Administration (NOAA), January 2020 was the fifth-warmest in its 126-year climate record. Heating degree days (HDDs), a temperature-based metric for heating demand, have been relatively low this winter, which is consistent with a warmer winter. During some weeks in late December and early January, the United States saw 25% to 30% fewer HDDs than the 30-year average. This winter, through February 8, residential natural gas customers in the United States have seen 11% fewer HDDs than the 30-year average.
Source: U.S. Energy Information Administration, based on National Oceanic and Atmospheric Administration Climate Prediction Center data
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
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