A white paper titled Opportunities and Challenges in the Permian, commissioned by Hastings Equity Partners in partnership with the University of Houston Energy Research, reports that a major industry consolidation for the region is looming.
In April, the U.S. became the largest oil producer in the world as a result of increased output in the Permian Basin. Enhanced techniques have allowed operators to cut the cost of drilling a well by nearly 40%.
With the Permian Basin predicted to produce an incremental one million barrels per day each year and several major new pipelines due to come online in the second half of this year, Hastings Equity Partners commissioned the University of Houston to find out where the incremental oil is going and to understand the downstream impact that new production levels will have.
The research found that major oil operators are projected to produce more than half of the oil in the Permian over the next four years, representing a historic shift in economic power. These large companies are consolidating production, resources and supply chains that will meet the majority of domestic needs. Their acquisitions of acreage in the Permian, as well as ownership stakes in the pipelines and downstream refineries and petrochemical facilities, means that smaller independent producers who traditionally sell to the majors will now need to market internationally and export overseas.
“While refineries have increased processing to keep up with production, supply of crude oil will soon outstrip demand and the producers will need to find new customers,” says Ramanan Krishnamoorti, chief energy officer at the University of Houston and co-author of the research. “Even though there is more than $90B in construction projects for terminals, LNG, refining and petrochemical facilities along the Texas and Louisiana coasts right now, and another $200 billion planned for the next decade, construction can’t keep pace with the supply of oil coming out of the Permian.” Read the announcement from Hastings Equity Parners. Read the full white paper.