The bottlenecks in the Permian are starting to capture the attention of the oil market, raising the prospect that U.S. shale production does not live up to the hype.
The frenzy in West Texas has predictably led to bottlenecks up and down the supply chain. Oil drillers are facing rising prices for labor, rigs, services and land. The lack of pipeline capacity is starting to force discounts for oil as large as $9 per barrel.
A new report from Rystad Energy points to the bottleneck specifically for pumping horsepower and frac sand. When wells are drilled, companies deploy trucks connected to pressure pumps that inject water, sand and chemicals underground to fracture a well. But the sky-rocketing level of drilling activity is actually straining the market for pressure pumping capacity. There just isn’t enough to go around.
“Capacity is expected to be particularly tight in the Permian in the second quarter before the majority of new equipment comes online in the second half of the year,” Rystad Energy wrote in its report. “More than half of total U.S. pumping capacity will be in the Permian.” Obviously, that means booming business if you are in the market of selling such equipment. “We are comfortably behind at the moment, and we are just fine with that,” a VP at an unnamed equipment manufacturer told Rystad. ( By Nick Cunningham, OilPrice.com)