The Permian Basin’s daily requirements for tanker trucks to take crude out of the oilfield could quadruple in the second quarter of this year, Rystad Energy warned in its January newsletter. Rystad Energy, based in Oslo with its U.S. office in Houston, is a leading independent energy research and business intelligence firm that aggregates and publishes all manner of data on the oil and gas industry.
The slide in West Texas Intermediate (WTI) crude prices—down 31% since October 3—have caused oilfield operators to guide down expected activity in 2019, which Rystad believes will slow down pipeline construction. That means that not only will the bottleneck on pipeline takeaway capacity not be relieved, but it will be exacerbated.
“We do however see risk of widening differentials in Q2 2019 as long-haul trucking demand rises from current levels of ~100,000 bpd to about 350,000-400,000 bpd,” Rystad wrote.
In the graph above, trucking need on a 1,000 barrel/day basis is represented by the dotted region on the left side of the image. The need for tanker truck capacity is expected to grow through the first quarter of this year before easing slightly during the second quarter and tailing off completely by the beginning of the fourth quarter.
Some back-of-the-envelope calculations can help us estimate how many tanker trucks full of crude oil that figure implies. A tanker truck can hold about 8,000 gallons of crude oil, and since one barrel of crude oil is the equivalent of 42 gallons, that means that one tanker truck can hold about 190 barrels of oil. The current number of tanker truckloads needed daily to take crude out of the Permian is therefore about 526 trucks (100,000 barrels per day divided by the 190 barrel capacity of each truck). The upper limit of Rystad’s projection would translate to 2,105 tanker truckloads per day (400,000 barrels per day divided by the 190 barrel capacity of each truck).
There are some unknown variables here: most importantly, we don’t know the average length of haul for tanker trucks moving crude out of the oilfield, so we don’t know how many turns per day a truck can complete. Our estimate of 2,105 tanker truckloads per day is just that: an estimate of daily truckloads. If these trucks can get the oil to nearby storage facilities, they may be able to do complete four or five round trips per day (accounting for truck traffic congestion in the Permian Basin). In that scenario, the oilfield may only need the services of a few hundred additional trucks.
But if the trucks are expected to do the work equivalent to that of the pipeline and move the crude from the Midland area to Corpus Christi or Houston, then they will be able to complete less than one round trip per day. The long-haul scenario would imply an additional need of thousands of trucks, a much more serious proposition that would strain regional tanker truck capacity and inflate rates.
Note that the Rystad newsletter explicitly uses the word ‘long-haul’—Rystad clearly does not mean what truckers mean when they use the word ‘long-haul’ (in our freight market data platform SONAR, ‘longhaul’ is defined as 801+ miles). The distance from Midland to Corpus Christi is 468 miles via I-10 and I-37; the distance from Midland to Houston is 475 miles via US-87. A conference call with Rystad analysts on the matter was constructive, but both Rystad and FreightWaves are still working on modeling true trucking demand measured in miles.
Tanker trucks moving crude from the oilfield to storage facilities, auxiliary pipelines, or refineries are just one component of fracking’s intensive use of trucks: sand, water, and equipment are also all moved into the oilfield by truck. FreightWaves has reported on the connection between shale drilling activity and flatbed spot rates in oilfield-associated lanes.
If Rystad Energy is right, the growth of Permian Basin oil production over the next three months will put a serious strain on tanker truck capacity, at least regionally, and have a similar effect on trucking rates. While national trucking capacity has noticeably loosened since October, crude-by-truck may keep things tight in the Louisiana-Texas-Oklahoma oil and gas region.