The crude oil highway from the Permian to the US Gulf Coast is getting crowded, but you would hardly know it from the market.
What stands out to East Daley Analytics is how muted the WTI Midland-to-Houston differential remains despite high utilization on pipelines moving Permian crude toward Gulf Coast export markets. The last time the Permian-to-Houston corridor approached 95% utilization was in September 2018, and the Midland discount widened by more than $8/bbl (see figure below). In our latest forecast, Houston-bound pipelines reach 93% utilization by December 2027, while the Midland-to-Houston differential remains below $0.70 in futures trading.
Houston, of course, isn’t the only destination available to Permian crude. Barrels can also move south to Corpus Christi or north to the Cushing hub.
But Corpus doesn’t offer much relief. In the Crude Hub Model, East Daley estimates that corridor is already ~94% utilized. The strong demand reflects Corpus Christi’s position as a preferred export market given its capabilities to load very large crude carriers (VLCCs) at terminals including Enbridge’s (ENB) Ingleside Energy Center and Gibson Energy’s South Texas Gateway. Even after the Cactus III brownfield expansion, only about 177 Mb/d of remaining capacity is available on that route.
That leaves Cushing as the obvious release valve. The Permian-to-Cushing corridor is only about 52% utilized, according to the Crude Hub Model, which at first glance provides a compelling counterargument to the idea that Permian crude is running out of takeaway capacity. If Houston and Corpus fill, producers and marketers can simply send the incremental barrel north.
The problem is that getting the barrel to Cushing is only half the trip.
For a Permian barrel ultimately destined for Gulf Coast refining or export markets, routing through Cushing means moving north before turning back south. East Daley estimates the total transportation cost of moving a barrel from the Permian to Cushing and then to the Gulf Coast at ~$4.39/bbl. As the more direct Houston and Corpus Christi routes fill, that higher-cost path should increasingly become the marginal transportation route that determines the Midland-to-Gulf Coast differential.
And even that release valve has limits.
The Cushing-to-Gulf Coast corridor is already approaching 80% utilization. Additional barrels moving south into Cushing — including potentially more Canadian crude — would tighten that corridor further and create more risk to Cushing-to-Houston transportation economics.
Put differently, spare pipeline capacity is not the same thing as cheap, economically equivalent takeaway capacity.
East Daley estimates that only about 500 Mb/d of capacity remains on the more direct routes from the Permian toward Gulf Coast markets. Continued Permian production growth will steadily consume that remaining headroom.
The market may not be pricing a Permian egress problem today. But the physical infrastructure is increasingly pointing toward one.
The last major wave of Permian pipeline construction created enough takeaway capacity to keep Midland differentials contained for years. That cushion is disappearing. Corpus Christi is already tight, Houston is moving toward similar utilization levels, and the alternative route through Cushing is both more expensive and increasingly constrained.
See East Daley’s Crude Hub Model for more details. We expect tightening Permian takeaway to widen regional crude spreads. The big question is whether the few remaining brownfield expansion opportunities can be started soon enough to avert volatility.
Brownfield expansions on Cactus III and Gray Oak could provide the next increments of physical relief, while a sharper increase in crude supply could pressure basis sooner. Both Cactus III and Gray Oak serve Corpus Christi, so if Houston-bound pipes continue to fill, the market could eventually require a new greenfield crude line to Houston. If announced, it would be the first new Permian-to-Houston crude pipeline since Wink-to-Webster entered service in 2020. – Rob Wilson, CFA. Tickers: ENB.
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