Rigs: The total US rig count decreased to 542 for the week of May 2.
Infrastructure: Phillips 66 and Kinder Morgan advanced the Western Gateway Pipeline after securing strong shipper commitments, positioning the project to help ease growing West Coast refined product supply constraints.
Supply & Demand: The US natural gas pipeline sample, a proxy for change in oil production, decreased 0.1% across liquids-focused basins for the April 28 week.
Rigs:
The total US rig count decreased to 542 rigs for the week of May 2. Liquids-driven basins decreased W-o-W to 414 from 416.
- Bakken (+1): Chevron
- Eagle Ford (-2): Devon Energy, Magnolia
- Permian (-1): Permian Resources
- Uinta (-1): EOG Resources
Infrastructure:
Following a second open season for the Western Gateway Pipeline, Phillips 66 (PSX) and Kinder Morgan (KMI) announced on April 20 that the companies secured enough long-term shipper commitments to move the project ahead, pending definitive transportation agreements and board approvals.
The latest open season closed March 3, and follows a first open season in October that drew significant shipper interest and executed some firm commitments. Given strong interest in the first round, the second open season expanded origins and destinations, such as the Los Angeles market via KMI’s Santa Fe Pacific Pipeline (SFPP).
East Daley Analytics covered both open seasons, outlining how Kinder Morgan would reverse the western leg of the SFPP system from Colton, CA to Phoenix, AZ. The reversal would enable east-to-west product flows into California, with additional connectivity into Las Vegas via KMI’s Calnev Pipeline. The project also would reverse the Gold Pipeline, which currently moves refined products from Borger, TX to St. Louis, to push volumes westward instead. The Gold Pipeline connects to PSX refineries in Borger, TX; Ponca City, OK; and Wood River, IL, representing 700 Mb/d of combined capacity.
The need for Western Gateway stems from the West Coast’s growing supply challenges and its limited connectivity to the broader US refining system. The closure of the Strait of Hormuz since the start of the Iran conflict has exacerbated these issues, with diesel prices rising to historically elevated levels in California, Washington and Nevada.
PADD 5 regular gasoline prices excluding California prices were 20% above the US average, and California prices 39% above the national average as of April 27. This comes at an inopportune time as Valero’s (VLO) Benicia refinery in Northern California was set to idle operations in April and begin importing products. Right now, the closure will create upside price risk on refined products in California, given that Western Gateway or competing proposals are still years away from filling the void.
With competitive pressure rising from competing refined products projects by HF Sinclair (DINO) and ONEOK (OKE), PSX and KMI appear focused on differentiating Western Gateway through a combination of multiple supply entry points and expanded market connectivity. Early shipper interest indicates Western Gateway is competitively positioned. If developed as proposed, the project could contribute to a longer-term shift in California supply toward domestic refined products and away from overseas imports.
Supply & Demand:
The US natural gas pipeline sample, a proxy for change in oil production, decreased 1.1% W-o-W across all liquids-focused basins.
Volumes were mixed, with the Barnett (-18.7%) and Rockies basins (-2.7%) seeing the most significant decreases. The Gulf of America (-0.7%) Anadarko (-1%), and Eagle Ford (-1.4%) samples also declined on the week. The Permian (+2%) and Arkoma (+0.4%) slightly increased. Basin-level movements largely offset one another, leaving overall volumes relatively steady. The Rockies and the Gulf of America have a high correlation between gas volumes and crude oil volumes, whereas the Permian and Eagle Ford basins correlation is less than 45%.
As of May 12, 136.5 Mb/d of refining capacity is offline for maintenance. BP’s Whiting refinery has 75 Mb/d of capacity offline due to planned maintenance, and Par Montana’s Billings refinery contributed 61.5 Mb/d to outages, also due to scheduled maintenance. Both are scheduled to be back up and running the second week of May.
Vessel traffic monitored by East Daley along the Gulf Coast increased W-o-W. A total of 33 vessels were loaded for the week ending May 9. East Daley expects this figure to continue rising as long as the Strait of Hormuz remains under blockade.