Crude oil midstream companies are facing a growing blending crisis in the Permian Basin.
Over the past 36–48 months, exploration and production (E&P) companies have nearly doubled their drilling efforts in the Delaware portion of the Permian Basin. As production in the west outpaces the Midland side in the east, it has led to significant blending issues for midstream companies, which must accept crude oil from both areas and blend to the proper specifications for their refinery customers.
For 85–90% of their downstream customers, midstream companies in the Permian Basin blend to meet West Texas Intermediate (WTI) standards. However, since more barrels are coming from the Delaware side each day, which produces oil with a higher gravity than WTI targets, it makes it harder to meet these requirements when blended with oil from the Midland side, which tend to naturally meet WTI standards.
Let’s take a closer look at the factors behind the blending issues facing the Permian Basin.
Permian Basin overview
Producing more than 5.5 million barrels of oil per day, the Permian Basin is the biggest shale oil basin in the U.S. Split into three key zones, each features oil with unique characteristics and differs in the type of wells drilled.
A major source of oil and gas production, the Delaware Basin is located in the western side of the Permian Basin. Delaware wells are slightly deeper (around 1,500-2,500 feet more) than those in the Midland Basin, and produce oil with higher gravity due to the higher pressure.
The Delaware side now accounts for 60% of overall crude oil production in the Permian Basin, or approximately 3.5 million barrels per day, with the average well producing 800–2,200 barrels a day. Additionally, it outpaces the Midland side by 10-20% in average gas production, with a typical big well producing 5–7 million standard cubic feet a day.
On the eastern side of the Permian Basin is the Midland Basin. Here, wells are a little bit shallower but have a lot less pressure, which generally leads to the production of more stable oil and less operational issues.
The Midland side produces just around 2 million barrels of oil per day, with the average well producing around 500–1,400 barrels per day. Meanwhile, gas production is lower than on the Delaware side, with a typical big well producing just 0.8–1.5 million standard cubic feet a day.
Central Basin Platform
Located in the middle of the Permian Basin is the Central Basin Platform. In this area, the wells are fairly shallow and drilled in zones like the San Andres formation, around 3,000-4,500 feet in depth. It is the oldest part of the basin, as drilling began there as far back as the 1920s.
Since it is in the secondary or tertiary recovery phase of its life cycle, only a minuscule amount of oil is produced, around 8–30 barrels per day, at a very low gravity. Due to low production volume, it is not a major factor to the overall Permian Basin.
Where does oil in the Permian Basin go?
Oil from across the Permian Basin mostly ends up at the midstream facilities and large tank farms in the Midland and Odessa areas. There, it gets blended before it is sent off, mainly to refinery customers in Cushing, OK, Houston, TX, as well as the Gulf Coast area. Oil is also sent to refineries in Artesia, NM, Big Spring, TX, and the Texas Panhandle, however, their combined processing capacity is only 275,000 barrels per day.
Issues with blending to WTI standards
For crude oil midstream companies in the Permian Basin, most of their customers want oil blended to WTI specifications, which require around 39.5–42.5 API gravity targets.
The Delaware side produces oil that typically has 44–52 API, while the Midland side produces oil that mostly falls into WTI targets at an average of 36–41 API. Blending the two to meet WTI standards has historically been an easy process, but with drilling and investments on the Delaware side now outpacing Midland, blending to the right gravity targets has become an increasingly difficult task for the area’s midstream companies.
Unfortunately, the dilemma’s severity increases with each passing day, leading to more shut-ins, more off-spec product going down the line, and likely more bad news waiting on the horizon.
While addressing this growing imbalance will take major cooperation by stakeholders on both major sides of the Permian Basin, there are steps companies can take now to ensure they are getting the most out of their current product and blending efforts.
For example, having the right technology in place that provides clear insights into your operations is essential for hitting blending model targets. Having a real-time view of your data makes it easier to consistently blend to specific standards while also getting the best margins.
Additionally, having all of this key data readily available at your fingertips allows companies to immediately address issues that may arise as well as better forecast production and performance, helping to address blending issues before the oil even leaves the ground.
Although technology alone cannot address the full impact of today’s issues in the Permian Basin, it can help companies keep better track of their blending efforts so they can make the right decisions based on real-time data.
Ransom is a subject matter expert for all things midstream and refinery operations, along with various upstream crude operations.