All dressed up and nowhere to go.
That best sums up the latest dilemma crude oil producers face as storage capacity grows more strained by the week. In response, the federal government has said “fill ‘er up” at the U.S. Strategic Petroleum Reserve, making available an initial 30 MMBbls of crude storage to be followed by another 47 MMbls of capacity, to help E&Ps find their supplies a place to land. At least for now.
Midstreamers who operate storage facilities and tank farms also are stepping up to the challenge to address the urgency among their pipeline shippers. Houston-based Phillips 66, whose Gray Oak Pipeline system began initial service late last year, just announced it will “modify its rules and regulations to accommodate on-system crude storage.” The 850-mile, 900 MBPD Gray Oak extends from the West Texas Permian and Eagle Ford to Corpus Christi and is expected to offer full service this month. Phillips says it will offer ancillary storage for Gray Oak pipeline shippers flowing WTI and WTL grades of crude oil at the company’s 1 MMBbl storage and export terminal on the Texas Gulf Coast. We’re projecting more pipelines soon will follow suit if they haven’t already.
The perfect storm our oil and gas industry finds itself in with this latest punch to the solar plexus is driving producers to consider storing their barrels in rail cars and floating storage via offshore marine vessels. Crude oil storage now has become the new black gold to hold black gold, and increasingly scarcer than a Pandemic cure. When there are no quick buyers, there are no quick answers to a predicament felt the world over amid rising production and bottomed-out demand.
As calls by some of the nation’s largest independent E&Ps grow louder to cut or even halt production—at least until the biggest thunderhead has clapped in this storm—the lack of storage may very well be the final about-face to rethink our industry after the clouds have parted.
What do you think?