Liquids pipeline to convert to oil in an effort to alleviate Permian bottlenecks

By Rachel Adams-Heard on 10/5/2018

HOUSTON (Bloomberg) -- The developer of the private equity-backed EPIC natural gas liquids pipeline will temporarily convert the conduit to carry crude oil as bottlenecks in America’s hottest shale play threaten to curtail production.

Oil service on the third and final phase of EPIC Midstream Holdings LP’s NGL pipeline is expected to start in the third quarter of next year, the company said in a statement Friday. That would offer interim relief to producers in the prolific Permian Basin of West Texas and New Mexico, a region facing a dearth of pipeline capacity until late 2019, when new projects are expected to enter service.

The pipeline crunch is forcing Permian producers to sell crude locally at a steep discount to prices on the Gulf Coast. Oil sold in Midland, in the heart of the play, for $15.60/bbl less than in Houston on Friday, after starting the year at a $3.40 discount. That comes as output in the basin soars, with researcher IHS Markit predicting supply will reach 5.4 MMbpd by 2023 -- more than every OPEC country except Saudi Arabia.

EPIC’s NGL system will be able to carry 400,000 bpd of crude until its oil pipeline, which will run alongside the NGL line, enters service by January 2020. The company had previously said the crude pipeline would enter service in the second half of 2019.

In the same statement, the company said it had received enough commitments to expand the crude pipeline to transport 600,000 bpd, with the ability to increase capacity to 900,000 bpd.

Noble Energy Inc., Apache Corp. and Diamondback Energy Inc., shippers on the crude pipeline, will have service on the converted liquids pipeline. Both the NGL and crude pipeline are backed by Ares Management LP’s private equity group.

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