Investors, Don't Let the Headlines Spook You

The Daley Note: October 24, 2022

A Bloomberg headline sent tremors through Energy Transfer (ET) investors last week: “West Texas Gulf Pipe to End Service from Midland-Goodrich: FERC.” But fear not, ET investors, as East Daley has unwound this midstream mystery and determined it’s all overkill.

In the October 17 article, Bloomberg cited a tariff update by ET’s West Texas Gulf (WTG) pipeline, which transports crude oil from the Permian Basin to pipelines and refineries on the Gulf Coast. “Energy Transfer’s West Texas Gulf crude system to halt crude service from Midland to Goodrich in Texas,” the article warned, citing a tariff update filed with the Federal Energy Regulatory Commission (FERC). The service to Goodrich would terminate on November 7, WTG said in the FERC filing.

Based on our Inbox, the headline spooked some investors, who feared ET would slash deliveries on a valuable crude oil pipeline to the Gulf Coast. We’ve investigated, and our read is the Bloomberg headline is a bit of a hatchet job.

East Daley is in the News.  Click here to read a recent Natural Gas Intelligence article highlighting East Daley's natural gas market perspective. Rob Wilson, EDA Vice President of Analytics, warned the LDC Gulf Coast Energy Forum of oversupply on the horizon. "By the end of next year, East Daley projects there could be more than 5 Bcf/d in added natural gas production, flooding domestic markets," NGI wrote.   

Oil pipeline tariffs are complicated, including detailed tariff sheets filed with FERC and state regulators for single as well as joint routes shared with other pipelines. We count seven active tariff filings for the WTG system, according to the pipeline's bulletin board.

WTG appears to have been using a joint route with  the Oryx pipeline system owned by Plains All American (PAA) to move barrels from Midland to Colorado City in West Texas, and then using WTG for the remainder of the route to Goodrich, TX (see map, courtesy of Energy Transfer). This service by WTG would be canceled, according to the filing, but the other six WTG tariffs would remain active.

Notably, WTG recently filed for services on a new route from Colorado City to the Nederland, TX crude terminal on the Gulf Coast, which is located further downstream of the Goodrich delivery point. The route from Colorado City to Nederland carries a charge of $1.7121/bbl and was filed with FERC on October 1.

Our view is that WTG likely is re-allocating pipeline capacity to shift crude oil deliveries from Goodrich to Nederland, offering new service options rather than shutting down. Ahead of Halloween, we don’t see a reason to be spooked or to further bloody Energy Transfer. – AJ O’ Donnell Tickers: ET, PAA.