Gray Oak Pipeline ramps up service
By Bernardo Fallas
Phillips 66 Corporate Communications
The Gray Oak Pipeline made its first commercial deliveries of crude oil to the U.S. Gulf Coast region, achieving another milestone and getting one step closer to full service.
The largest pipeline project to be constructed by Phillips 66 now connects two major oil-producing regions in Texas to the heart of the U.S. refining industry and beyond. It will enable reliable, safe access to product, spurring production in major shale plays and bringing growth to Texas’ energy industry and the overall U.S. economy.
“We take pride in this significant achievement,” said Tim Roberts, Phillips 66 Executive Vice President of Midstream. “The long-term growing demand for energy has not changed, and Phillips 66 will be well positioned to meet that need by providing much-needed affordable energy to the global markets.”
850 miles and 900,000 BPD
Gray Oak is a state-of-the-art logistics system anchored by an 850-mile pipeline stretching from the Permian Basin in West Texas to the Eagle Ford Shale in South Texas and on to the Gulf Coast. Phillips 66 is the pipeline’s builder and operator, and Phillips 66 Partners, the master limited partnership formed by Phillips 66, owns a 42.25% stake.
The system, which began limited service last November from West Texas to Central Junction near Three Rivers, about 75 miles southeast of San Antonio, has expanded service to include more grades of crude and is extending it south and east to the coast. Work to connect Eagle Ford production to Gray Oak is ongoing and expected to be completed by June 1.
Once fully operational, Gray Oak will transport up to 900,000 barrels per day to destinations including the South Texas Gateway Terminal, currently under construction in Ingleside and in which Phillips 66 Partners owns a 25% interest, and the Phillips 66 Sweeny Refinery.
The long-term economics
Gray Oak’s progress comes at a critical time.
Global energy markets are weathering unprecedented headwinds resulting from the coronavirus pandemic, chief among them sharp decreases in crude oil demand and prices. Phillips 66 has taken proactive measures in response, reducing operating and administrative costs as well as capital spending through the deferral of some projects in early stages of development.
Current events have significantly impacted demand for West Texas crude oil, resulting in an urgent need for storage. Gray Oak has up to 1 million barrels of storage capacity available to shippers for West Texas Intermediate and West Texas Light grades of crude oil. As a result, Gray Oak Pipeline is modifying its rules and regulations to provide an on-system crude storage service in response to shipper demand.
While Phillips 66 is not immune to the challenging environment, the company can leverage its diversified portfolio to mitigate impacts to business.
“Gray Oak is backed by long-term shipper agreements,” Roberts said. “So while demand may be temporarily depressed, we are confident in the long-term economics of this pipeline.”