The booming oil and natural gas industry has left pipeline and other midstream operators struggling to catch up.
The combination of horizontal drilling with hydraulic fracturing, or fracking, has allowed companies to produce massive amounts of oil and natural gas from parts of the county like North Dakota, which had seen little drilling activity in the past, and from beneath some of the country’s oldest and richest oil fields.
“These are exciting times for your industry,” Magellan Midstream Partners’ Stan Rogers told participants this week at the Drilling Unconventional Gas conference in Tulsa. “What’s good for you is good for us.”
Magellan recently completed about $800 million in new pipelines projects, has about $500 million under construction and has identified another $500 million in potential expansion projects.
“I’ve been in this business for 32 years, and this is the most exciting time I’ve seen in the industry,” said Rogers, Tulsa-based Magellan’s vice president of commercial refined products and terminals.
Midstream companies in many ways have fared the best in the industry. Their profits are far less dependent on ever-changing commodity prices because they typically charge a flat rate for transportation, processing and storage.
They also build new lines only after they secure long-term guarantees from producers.
But construction projects can’t move fast enough to keep up with demand. In some instances, it’s faster and more efficient to convert old lines.
Magellan recently reversed an old refined products line that led from the Houston area to near Midland, Texas. The line now carries oil from the Permian Basin to refineries along the Gulf Coast.
“We’re constantly evaluating how we can make best use of our assets and put them into crude oil service if possible,” Rogers said. “We’ve been repurposing assets, expanding storage, getting increased capacity and reversing pipelines. It’s a great time to be in the midstream business. These challenges for moving crude oil are a great opportunity for us on the midstream side.”
The rich supply of oil, natural gas and natural gas liquids also has led to renewed interest from chemical companies — and the pipeline companies that serve them.
Denver-based DCP Midstream over the past three years has invested $6 billion in infrastructure upgrades.
“Five years ago, if you had asked petrochemical companies where they would invest, the U.S. would not have been on their radar,” said Richard Bradsby, vice president of DCP’s mid-continent business unit. “Today, five world-scale crackers (chemical plants) are under construction along the Gulf Coast, and another dozen facilities are also being enhanced.”