Plains’ Timely Vision – Wink To Webster Can Be The “Super-Highway” Permian Egress To Gulf Coast
Mar 27, 2019
Timely comments from Plains today at a US sellside conference. It seemed like Plains took advantage of Monday’s differing views from Magellan and Energy Transfer on the status of their Permian Gulf Coast pipeline to highlight Plains’ vision that the Plains/Exxon Wink to Webster pipeline can be the “super highway” for Permian oil egress to the Gulf Coast. We believe this vision for Wink to Webster to be much larger than the >1 mmb/d initial capacity, is large enough to bring in other partners. And Plains also seemed to signal for the first time that they may be bringing in a partner to the pipeline. With the logical partner being one or more of the PGC pipeline partners. The takeaway from this week isn’t on whether PGC pipeline goes ahead or not, rather its that the Plains/Exxon vision for a super highway Permian oil egress will provide higher certainty for more Permian oil pipeline capacity than an approved Wink to Webster 1mmb/d capacity and an uncertain PGC 0.8 mmb/d capacity. Its just another affirmation of the strong growth potential of the Permian, especially with Exxon being the partner in the Wink to Webster super highway and its commitment to its Permian growth plan.
Exxon/Plains Wink to Webster >1.0 mmb/d Oil Pipeline. Exxon and Plains have already approved and are moving ahead on the Wink to Webster pipeline, a JV between ExxonMobil, Plains All American Pipeline, and Lotus Midstream. The pipeline will deliver crude from the Permian, to the Gulf Coast, with exit points in Webster and Baytown, Texas. In service timing for the project is H1 2021, and expected capacity is more than 1 million barrels of crude oil and condensate per day. In Exxon’s March 6 analyst day, the company said “A key project here is our Wink to Webster Pipeline that I mentioned earlier. It provides the lowest cost highest value transportation to our Baytown and Beaumont refineries on the Gulf Coast. It’s going to be a 36-inch diameter pipeline that will move over 1 million barrels a day to the Gulf Coast plan startup is 2021. In addition to our ownership position we plan to make a shipping commitment of at least 500,000 barrels a day”.
Exxon/Plains Wink to Webster >1 mmb/d Pipeline
Source: Wink to Webster LLC
Energy Transfer/Magellan Midstream/Delek’s Permian To Gulf Coast (PGC) 0.6 mmb/d Oil Pipeline. The Permian Gulf Coast Pipeline (PGC) is proposed by Energy Transfer LP, Magellan Midstream Partners (MPLX), and Delek U.S. Holdings. This project has a base capacity of 0.6 mmbl/d, expandable to 1.0 mmb/d with multiple Texas origins including Midland, Wink, and Crane and delivers crude to the US Gulf coast. Later in the blog, we note the mixed views from Energy Transfer and Magellan that emerged on Monday on the project.
Permian Gulf Coast Oil Pipeline
Source: Magellan Midstream Partners LP
Plains/Exxon have been open to see about making the project stronger, but hadn’t yet committed to or seen the need to have any other partners in Wink to Webster. In its Q4 call (see our Feb 10, 2019 Energy Tidbits), Plains confirmed “we’re always looking at not only additional shippers on the line, but talking to others on how we might be able to improve the returns for not only us and others. So while open to all that, we will — we’re still progressing forward, and what we really wanted to do is to get to the point where we could order pipe and get the process going. So what that says is, we haven’t — we certainly haven’t eliminated an opportunity to make the project stronger, and conversations continue, but at the base core of it, we’ve got pipe ordered and we’re ready to go.” And we aren’t aware of either Plains or Exxon saying they would include others, rather they are open to talk to others to make the project stronger.
Seemed like mixed messages from Magellan and Energy Transfer about PGC pipeline on Monday. There were some mixed messages this week if PGC pipeline was going ahead. (i) On Monday, Magellan filed an 8K that says clearly the PGC pipeline as “initially proposed” isn’t likely to go ahead and the partners have reduced capex to the project. The 8K said “Due to recent developments, it is unlikely that the Permian Gulf Coast or PGC pipeline project as initially announced will proceed, and, therefore, the Partnership is decreasing its expansion capital spending projections by approximately $200 million for 2019 and $250 million for 2020 to reflect its previously expected share of the project”. (iii) Magellan 8K also said that it “continues to actively develop a crude oil pipeline project in the Permian Basin, but the probability of success is unknown at this time”, which we believe is their approach to join Plains/Exxon. (iii) No surprise, Energy Transfer was asked on the Plains 8K filing. Bloomberg terminal wrote “Energy Transfer Touts Permian Pipeline JV as Magellan Wavers” and “We will continue to pursue a project as per discussions with a number of customers and will move forward once we have sufficient commitments that would provide us with a very accretive project with long term commitments,” Energy Transfer says in emailed statement”.
Plains made a timely introduction of the “super highway” Permian egress potential for Wink to Webster. Bloomberg terminal reported on Plains presentation today at a US sellside conference in New Orleans. It was a short 87-word story, but we thought it was very insightful and management’s comments pointed to key takeaways on the Plains/Exxon Wink to Webster pipeline and the PGC pipeline. In light of the apparent split between Magellan and Energy Transfer on Monday, there can’t be any doubt that Plains knew questions about bringing in Magellan, Energy Transfer, Delek or others into Wink to Webster was going to be coming at them today. Plains had to have thought out their messaging in advance, saw the opportunity to step into the void with their introducing their “super highway” Permian oil egress message and did so.
• Sounds like they are bringing another partner to the pipeline. Management said “This is a pretty unique project in that respect so we’re going to be careful as to who we bring in”. It may be subtle, but this is different than their prior comments and we believe they are signaling they are bringing someone into the project, but are being selective on the partner(s).
• The signaling they are bringing someone into the project also points to our working assumption – PGC isn’t likely to get done. Unless Plains is suggesting someone other than one or some of the PGC partners, losing one or more of the PGC partners to the “super highway” would be the clear signal PGC isn’t going ahead. And supportive of the Magellan 8K disclosure.
• “Super highway” oil pipeline from the Permian. Management said “We want this to be the super-highway from the Delaware Basin and Midland Basin to market”. It seemed timely for Plains to introduce their vision of a “super highway” and we believe it is clearly signaling Plains/Exxon are thinking big, really big about Wink to Webster. Plains/Exxon have always noted that Wink to Webster was >1 mmb/d, but we don’t think they would say they would be talking about this being the super highway Permian oil egress if they were only thinking the 1 mmb/d or something a little higher. Rather, we believe Plains is signaling they are already thinking about an expansion, a big expansion and one that could offset the loss of the volumes of a PGC.
• We also think the super highway would be the way to provide bigger volumes to the new partners ie. give them a little bit in the phase 1 capacity of 1 mmb/d but give them some in phase 2. We also believe it also reflects the fact that Plains/Exxon only have a certain amount of initial capacity they are prepared to make available for new partners.
Just another big affirmation for the Permian oil growth potential. If our interpretation of Plains hints today is right, it’s a big positive for the continued growth of the Permian. The Magellan 8K reaffirmed expectations – there was risk that the 0.6 mmb/d (expandable to 1.0 mmb/d) PGC oil pipeline would get completed. Instead of looking at one definite >1 mmb/d Wink to Webster pipeline and one uncertain 0.6 mmb/d PGC pipeline, we believe Plains comments today point to the greater certainty of a much larger than 1 mmb/d super highway Wink to Webster oil pipeline. We won’t be surprised to see the super highway end up offsetting or being close to offsetting a potential loss of the PGC pipeline capacity. Combine that with Exxon’s analyst day increased Permian outlook, we believe super highway is just another big affirmation for the growth potential of the Permian. When it is all said and done, our SAF Energy table of Permian pipelines may not have a different total capacity, it just more likely that the Wink to Webster super highway volume goes up and more or less offsets the potential loss of the PGC volumes.
SAF Energy’s List of Proposed Permian to Gulf Coast Oil Pipeline Projects
Source: SAF Energy, Company Reports, EIA, Platts