From Bust to Boom
The midstream market of the petroleum industry has seen its share of ups and downs in the past 25 years. This sector, which encompasses the processing, storing, transportation, and marketing of petroleum products, was not seen as an area with much potential for future profitability as recently as 2006. An article published by Deloitte details how the American midstream market was consolidated in the late 1990’s. At that time, most domestic oil and gas supplies were located in readily accessible areas and could be reached through existing pipeline infrastructure. Many forecasts were predicting that pipelines in the U.S. would be built out by 2006. As we all know now, this was not the case. No one foresaw the oil and shale boom that would soon upend years of conventional wisdom about domestic oil production, supplies, and storage.
Nearly Unprecedented Growth
During the period from 2006 through 2012, this market saw a tremendous increase in investments. Midstream companies doubled their investments during this period when compared to 1992 through 2006. Deloitte reports that this increase in expenditures outpaced upstream companies at the time, making the midstream sector the third largest in the U.S. oil and gas industry, just behind supermajor companies and large independents. In spite of these increases, companies providing storage, processing, and transportation were still having trouble keeping up with the needs created by the shale oil boom. For example, in 2011, the U.S. Energy Information Administration reported that 35% of the natural gas produced in the Bakken shale was not on the market due to insufficient infrastructure.
Weathering the Storm
The surge of oil supplies caused by the domestic oil boom ended up playing a major role in the drop of oil prices. As this trend has continued, new infrastructure construction has also slowed from the frenzied levels it saw a few years ago. The industry as a whole is still struggling to adjust to the prices of oil we see now. And yet, many experts are optimistic about the future of midstream companies. In a recent webcast for the Oil and Gas Journal, petroleum expert Daniel Lippe points out that even though oil prices have dropped the need for storage and processing remains high. Lippe notes that U.S. crude storage is currently at the highest levels ever recorded. Meanwhile, the recent oil booms in domestic shale regions continue to change the United State’s position in the world from consumer to producer of crude. U.S. oil companies continue to push to end the ban on crude exports, which would open up new markets for their current oil stockpiles. Depending on how this issue plays out, it is possible that the U.S. could become “the storage center for the world,” for crude, as Lippe predicts. This will require another major increase in midstream activity to build and maintain the infrastructure to store, transport, and process domestic crude supplies.
Signs of Life
In spite of the recent downturn in oil prices, companies are starting to invest in the midstream market again. For example, Energy Spectrum Partners VII LP and members of the Bluewing management team have made an initial equity commitment of 100 million dollars to Bluewing Midstream LLC. This capital will be dedicated to acquiring and developing terminals and transportation for oil and gas, focusing initially on the Gulf Coast. As these trends continue, Southwest Process Controls will be there for midstream companies, providing a complete supply of valves, gauges, hoses, tubing, and a host of other essential products. While the petroleum market remains notoriously difficult to predict, we stand firm as a reliable component source for all petroleum-based markets. To learn more about the role our quality products play in the midstream market and more, please contact us directly.