Shell Midstream saw a 21% year-on-year increase in pipeline crude flows to 2.073 million b/d during the second quarter as two new fields came online in the US Gulf of Mexico, CEO Kevin Nichols said Friday.
"In May, Shell announced the initial production from Appomattox, which is expected have peak production of 175,000 b/d, connecting into the Proteus and Endymion pipelines," said Nichols on the company's second quarter results call, referring to Shell's deepwater oil and gas Gulf of Mexico project.
"Now this is exciting news as it opens up a new production frontier in the Gulf. [A]ppraisal work continues on fields such as Redbird, Pittsburgh, Dover, Fort Sumter, all of which could tie into Appomattox in the future," he added.
Also online in the second quarter was LLOG's Buckskin field which feeds the Poseidon pipeline. Peak Buckskin production is estimated at 30,000 b/d.
US Gulf of Mexico output has reached record levels as tie-ins to existing infrastructure shortens the time and cuts the cost to bring an offshore field to production. The Energy Information Administration expects production will average 1.9 million in 2019 and 2.0 million in 2020, up from 1.7 million b/d in 2018.
The EIA expects nine more projects to come online in 2019, and three more in 2020.
A Final Investment Decision (FID) was announced on Thursday to develop two new projects expected online in 2021 which will increase flows through Shell Midstream's system.
BP Phase 2 Thunderhorse South will add 50,000 b/d to Shell Midstream's Proteus and Endymion systems while Shell's Powernap will add 35,000 b/d into the Mars corridor, Nichols said.
H2 TURNAROUNDS
Shell Midstream's offshore network of pipelines is well-positioned to take advantage of growing production of medium sour crudes like Mars, Poseidon and Thunderhorse from the US Gulf of Mexico.
These crudes are in high demand globally by refiners seeking to optimize crude slates ahead of IMO 2020 and make cleaner 0.5% sulfur bunker fuel
However, third quarter flows from the Eastern Corridor where Appomattox is located is expected to be lower as turnarounds by producers started in the second quarter are continuing into the third as planned, said Nichols.
Fourth quarter flows will also be impacted as turnarounds at other unspecified production fields were moved from the third quarter, Nichols said.
Also boosting crude volumes during the second quarter, Shell Midstream announced a successful open season for its Zydeco pipeline system, which carries Texas crude east to Louisiana refineries and for export at LOOP, the only US deepwater crude port currently able to load VLCCs.
INCREASED PRODUCT PIPELINE STAKES
Shell Midstream benefited from taking over Shell's stakes in two key US refined product pipelines during the second quarter. The company now has a 38.59% stake in the Explorer and a 16.125% stake in the Colonial pipeline.
"I'm pleased with our second quarter performance, which was underpinned by our increased ownership in Colonial and Explorer - two of the premier refined products pipelines in the United States," said Nichols.
Midwestern flooding and refinery outages pushed up flows on the Explorer to 775,000 b/d in the second quarter from 551,000 b/d in the first quarter. The Explorer pipeline carries refined products from the USGC to the Chicago market.
Colonial is the largest refined products pipeline in the United States, supplying about 50% of all US Atlantic Coast refined products. The pipeline starts in Houston, Texas, and ends in Linden, New Jersey.
