Oil pipelines from the United States’ top shale field to Houston are filling up again due to rising output, absorbing most of the space on lines to the main south Texas export hub in Corpus Christi. The US crude exports hit a record of around 4.5 million barrels per day (bpd) in March, driven by recovering Chinese demand and competitive pricing for US oil. Sanctions on Russian crude purchases by the European Union and Britain have also boosted demand.
Pipelines that move oil from the Permian basin in West Texas to Corpus Christi are more than 90% full as buyers snap up the light, sweet oil, encouraging shippers to seek alternate routes. Meanwhile, Houston, which was previously the top US export hub before an expansion in capacity made Corpus Christi the main export hub, has ample room. Its pipeline utilization averaged 57% in 2022, up from 49% the year before, paving the way for new production from the Permian basin to flow to Houston.
Permian production is projected to hit a record 5.7 million bpd this month, topping Canada’s average daily crude output last year, according to the US Energy Information Administration. Overall US oil output is projected to touch an all-time high of 12.53 million bpd this year on rising demand and prices. This growth in output will widen the difference in price for light, sweet West Texas Intermediate crude (WTI) at the delivery point in East Houston compared with price at Midland in the Permian as shippers are willing to pay more to get barrels out of the basin and to the coast for export.
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Houston’s pipeline utilization is set to continue to grow as plans to widen the Houston ship channel to reduce congestion and a 250,000 bpd expansion of capacity at Exxon’s Beaumont refinery, will help boost flows to Houston. Furthermore, proposed oil export terminals around Houston will add to future flows. Of the four proposed crude oil export terminals planned for the US Gulf Coast this decade, two are off Freeport, about 60 miles south of Houston, and a third east of Houston.
Oil pipeline companies are proposing to expand capacity to Corpus Christi, with Enbridge considering a 200,000 bpd expansion to its 900,000 bpd Gray Oak pipeline and later add an extension to Houston. As the flows to Houston grow, it is expected to widen the differential in price for WTI at East Houston compared to the price at Midland in the Permian. East Daley’s O’Donnell estimated that WTI at East Houston, also known as MEH, is expected to trade about $1 per barrel higher than WTI at Midland by year-end, with the spread being 35 cents on Thursday.
In conclusion, the rise in US crude exports, driven by recovering Chinese demand, competitive pricing, and sanctions on Russian crude purchases, has boosted the utilization of pipelines moving oil from the Permian basin to Corpus Christi. Buyers are snapping up the light, sweet oil, and encouraging shippers to seek alternate routes, including Houston. As Houston’s pipeline utilization grows, plans to widen the Houston ship channel and proposed oil export terminals around Houston will add to future flows. The increase in flows to Houston will widen the difference in price for WTI at East Houston compared to the price at Midland in the Permian as shippers are willing to pay more to get barrels out of the basin and to the coast for export.
