August 25, 2017 marked the one-year anniversary when Hurricane Harvey made landfall near the town of Rockport, Texas as a Category 4 hurricane. The storm carried maximum sustained winds of 130 mph, dumped over 60 inches of rain and caused $125 billion in damage, according to the National Hurricane Center.

A lot has changed over the past year. Many Houston residents and the surrounding area still recovering from the devastating effects of the storm. Like the fighting spirit of the Houston-Galveston area community, the oil and gas industry too has displayed its unique mettle and resiliency in the aftermath of the storm.

Below are a some notable milestones the oil and gas industry has achieved since last year.

Crude Oil Exports Surging

Exports of crude oil have surged over the past year thanks in part to the lifting of a decades-old ban on exports in 2015 and increased production in shale plays such as the Permian, Eagle Ford and Bakken due to rising prices. Consequently, midstream infrastructure is at or near full capacity ferrying the commodity to key destination hubs, such as the Ports of Houston and Corpus Christi, to be hauled on ships to overseas customers.

Total U.S. crude oil exports hit a record high of 2. 2 MMbbl/d in June, according to the U.S. Energy Information Administration (“EIA”), with indications it could reach 3 MMbbl/d as work to deepen ports such as on the Houston Ship Channel and Corpus Christi near completion in order to handle more, larger crude-carrying ships; this notwithstanding new capability at the Louisiana Offshore Oil Port (“LOOP”)—an offshore hub off the coast of Louisiana that historically imports crude—retooling to handle exports as well.

Meanwhile, the U.S. port district of Houston-Galveston recently began exporting more crude oil than it imported for the first time on record. In April 2018, crude oil exports from Houston-Galveston surpassed crude oil imports by 15,000 bbl/d, according to the EIA. In May 2018, the difference between crude oil exports and imports increased substantially to 470,000 bbl/d.

On average since mid-2017, the U.S. port district of Houston-Galveston has accounted for slightly more than half of the crude oil exported from the U.S., and the share increased to a record 70% in May.

Crude Oil Prices, Production on the Rise

Crude prices have risen exponentially since Harvey, with spot prices of West Texas Intermediate (“WTI”), the U.S. benchmark, last sitting at $66.50/bbl in the week ended August 20, 2018—a nearly 40% rise from $47.65/bbl a year ago.  Meanwhile, the global Brent crude benchmark, has risen to $71.11/bbl, or 37%, from $51.87/bbl last year.

Inevitably, the rise in crude prices has prompted the upstream oil and gas sector to produce more oil in shale areas such as the Permian Basin of West Texas and New Mexico, the most active shale play, which houses 485 rigs as of August 24, 2018, according to Baker Hughes, a nearly 29% increase from the same time last year. Currently, the prolific shale play is pumping over 3 MMbbl of crude daily.

In August 2017, the U.S. pumped 9.224 MMbbl/d of crude. The U.S. breached the 10 MMbbl/d mark in November 2017—the first time since the 1970s—and hit a record 11 MMbbl/d in July.

U.S. crude oil production is expected to average 10.7 MMbbl/d this year, up from 9.4 MMbbl/d in 2017, and is seen averaging 11.7 MMbbl/d in 2019., according to the EIA.

Downstream, Midstream Oil & Gas Going Strong

Harvey also highlighted just how important the Gulf Coast refining and refined product pipeline infrastructure is to the rest of the U.S.

For the week ending July 6, 2018, the four-week average of U.S. gross refinery inputs surpassed 18 MMbbl/d for the first time on record, according to the EIA. U.S. refineries are running at record levels in response to robust domestic and international demand for motor gasoline and distillate fuel oil.

Before the most recent increases in refinery runs, the last time the four-week average of U.S. gross refinery inputs approached 18 MMbbl/d was the week of August 25, 2017. Hurricane Harvey made landfall the following week, resulting in widespread refinery closures and shutdowns along the U.S. Gulf Coast.

Despite record-high inputs, refinery utilization as a percentage of capacity has not surpassed the record set in 1998. Rather than higher utilization, refinery runs have increased with increased refinery capacity. U.S. refinery capacity increased by 862,000 barrels per calendar day (b/cd) between January 1, 2011, and January 1, 2018.

Meanwhile, increased crude production in the Permian has put a strain on takeaway capacity on existing pipelines this year. The result has been existing pipelines operating at maximum capacity, steep discounts for crude in Midland vs. Cushing, Oklahoma (the primary crude storage hub) and concerns about a production slowdown sweeping over the Permian Basin.

Today, there is a rush to build additional pipelines in the Permian to alleviate some of the capacity constraints. Several projects are under construction and set to come online essentially at the same time – late 2019 and early 2020. This increase in capacity should ease the constraints and narrow the WTI Midland v. Cushing spread. 

The Permian has approximately 3.1 MMbbl/d of takeaway capacity and local refining capacity of some 300,000 bbl/d. The Permian is producing just around 3.4 MMbbl/d, which means the pipelines are nearly full or already at capacity. The EIA sees the region adding around 600,000 bbl/d in 2019, which will be difficult for the midstream sector to digest. But with great challenges come great opportunity for the successful buildout of this burgeoning energy sector.