Plains All American's new 500,000 bpd Sunrise Expansion pipeline enabled new outlets for Permian crude. Though the Permian continues to see bottlenecked outbound capacity, Sunrise presented some much-needed relief. The pipeline, which originates in Midland, TX, and passes through Colorado City, TX, before terminating in Wichita Falls, TX, came online ahead of schedule in October 2018, according to Genscape intelligence.
The activation of Sunrise not only provided some necessary relief for producers in the Permian—the WTI-Midland/WTI-Cushing differential widened to $17.50/bbl in September 2018 prior to Sunrise coming online, according to Genscape price assessments—but also shifted the Cushing, OK, balance and crude sourcing habits for several Mid-Continent refineries.
Most Roads Lead through Cushing
Sunrise’s largest and most important impact, other than providing relief for Permian producers, was that it enabled Plains' other Permian long haul pipeline, the 550,000 bpd Basin pipeline, to expand and reach near-full utilization. Prior to Sunrise coming online, Basin averaged less than 400,000 bpd in September 2018, according to Genscape's Mid-Continent Pipeline Service. By November 2018, the pipeline climbed to an average of nearly 530,000 bpd.
Not coincidentally, storage inventories in Cushing began to build around the same time. While economic factors were also at play–the crude market structure for WTI flipped to contango in October 2018, potentially incentivizing storage plays–the resulting expansion of the Basin pipeline as Sunrise came online sent an incremental 100,000 - 140,000 bpd into Cushing beginning October 2018, according to Genscape’s Mid-Continent Pipeline Service.
With Cushing-to-Gulf Coast pipeline capacity utilization above 95 percent as of late 2018, according to our flow measurements, Cushing outbound pipelines haven’t had enough spare capacity to accommodate the extra crude. Cushing inventories climbed more than 19mn bbls between weeks ending Sept. 14, 2018, and Dec. 28, 2018, according to Genscape’s Cushing Crude Oil Storage report.
Sunrise: a Bright Spot for Mid-Continent Refineries
There were some less obvious but equally important outcomes from Sunrise coming online. The Wichita Falls storage hub, which is the terminus point for the Sunrise pipeline, is the origin point for several Mid-Continent refinery feeder pipelines. When Sunrise began flowing in October 2018, those feeder pipelines sprang to life.
Phillips 66's 100,000 bpd Oklahoma Mainline, which flows from Wichita Falls to the company’s 203,000 bpd Ponca City, OK, refinery, averaged just over 6,000 bpd in 2018 prior to October 2018, when Sunrise came online, according to Railroad Commission of Texas (TxRRC) filings. In November 2018, average flow reached almost 25,000 bpd.
NuStar Energy's Texas and Oklahoma pipeline system, which has an origin point at Wichita Falls, also received a boom. Plains crude deliveries to NuStar at Wichita Falls, which averaged less than 33,000 bpd in 2018 prior to Sunrise coming online, reached a record high of almost 94,000 bpd in November 2018, according to TxRRC filings.
One of the destination points of that NuStar system is Valero's 88,000 bpd Ardmore refinery in Oklahoma. With a fresh source of price-advantaged crude now available from Sunrise via Wichita Falls, the Ardmore refinery began to source less from Plains' Red River-Cushing to Longview pipeline, which puttered out to near zero as of November 2018, according to Genscape pipeline flow measurements.
Mid-Continent refineries aren't the only ones switching things up. Energy Transfer Partners' 150,000 bpd Permian Express I pipeline, which flows from Wichita Falls to the Texas Gulf Coast, also began to absorb flow from Sunrise. The pipeline averaged 73,000 bpd in 2018 prior to Sunrise coming online. By November 2018, Permian Express I flow reached 146,000 bpd, according to TxRRC filings.
The activation of Sunrise had ripple effects beyond providing a fresh outlet for bottlenecked Permian crude. Flow on the Basin pipeline, the direct route to Cushing, took off in late 2018, providing support for the recent building pattern at Cushing. Sunrise also contributed additional volumes into Cushing by displacing previously sourced crude consumed by nearby refineries. What's more, Sunrise was only 50 percent utilized as of November 2018, according to TxRRC filings.
While further expansions on pipeline systems out of Wichita Falls are necessary for Sunrise to grow beyond its current utilization, the new pipeline outlet will continue to contribute to builds at Cushing, both directly and indirectly. With Cushing outbound pipelines facing their own constraints, and new outbound pipeline capacity not expected for another several months, Sunrise will continue to cast shadows beyond the confines of the Permian.
Genscape will continue to monitor pipeline flows, storage inventories and refining operations in the U.S. mid-continent to provide timely data on the fundamentals driving prices.