The scale of shale…

Exxon Mobil signed a JV on Tuesday with Plains All American Pipeline LP to build a pipeline that will ease it’s offtake problems in the Permian. Permian has been trading at a discount to WTI of up to USD 27 per barrel due to export constraints from the region so there is a real incentive to come up with a permanent solution.

The thing that struck me was the scale of the pipeline: 1 million barrels capacity per day. That single pipeline will carry as much as the entire output of the UKCS! ~1% of global oil demand being carried in one pipeline. There are a lot more of these pipelines being built as well and they are constructed relatively cheaply and very quickly.

I repeat again that I really struggle to see how a multi-year boom in oil prices can happen now on the same scale as previous cycles. The ability of shale to act as a marginal producer and the ability of E&P companies to develop the infratsructure much more quickly than before seem to act as cap on the price that hasn’t existed before. They could be famous last words but the scale of the investments and infrastructure being committed to Lower 48 counts is part of a genuine supply side revolution in the current oil market.

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