By Stephanie Kelly

NEW YORK (Reuters] – Nearly half of the U.S. oil pipeline capacity is unused. This increases competition for crude barrels in high-output areas such as Texas’ Permian basin.

The U.S.’s overall pipeline capacity utilization rate is around half of what it was in early 2020 prior to the outbreak.

The pipelines are half full, as the production has fallen to just 11 million barrels per day, despite the fact that it soared to 13,000,000 barrels/day in 2020, making the United States the world’s top oil producer.

Oil and gas shipping companies often build pipelines in times of high production, only to realize that they have too many people when there are downturns. Many pipelines were created in Texas’ Permian, New Mexico (the largest U.S. crude oilfield) to reach export destinations during the period of high production between 2017-2018.

As the U.S. oil sector has struggled to recover after the outbreak, some pipeline operators have taken measures in response.

Overbuilt basins, such as the Permian have higher uncommitted shipping costs than they did before the pandemic. However, smaller basins have been able to increase rates because of fewer shipping options. Ryan Saxton is the head of Wood Mackenzie’s oil data department.

As an incentive to shippers who were committed during the crisis, oil companies offered discounted rates, according to Jesse Mercer (enverus senior director for oil markets). He said that companies will likely end such offers as production returns.

Saxton stated that Phillips 66’s Gray Oak Pipeline is the Permian’s best performing pipeline, with 94% utilization.

Gray Oak’s uncommitted tariff rate for shipping is $2.97/barrel, as compared to the $4.00-per barrel on BridgeTex, another Permian pipe.

Phillips 66 reported that its pre-tax income from midstream transportation rose by $30 million compared to the second quarter. This was due in part to Gray Oak which is one of the most important pipelines in the Basin with a capacity exceeding 900,000.

BridgeTex is a joint venture between Magellan Midstream and Partners LP. Its utilization rate has been around 70%, Saxton stated. This 440,000-bpd pipeline delivers crude oil to Magellan’s East Houston terminal.

BridgeTex volumes declined to 315,000. Approximately 5% lower than 2020 volumes due to uncommitted shipping and pricing differences. Magellan reported this in their most recent earnings call. Third quarter revenue from crude transportation and terminals decreased $38 millions.

Saxton explained that the utilization of pipelines directly affects performance for midstream operators.

However, earnings are starting to recover from lower utilization, said Colton Bean, director of infrastructure research at Tudor, Pickering, Holt & Co.

Bakken production in North Dakota has fallen to pre-pandemic levels. Energy Transfer Saxton reported that the Dakota Access Pipeline of LP (NYSE: ) is currently at 77%, compared to nearly 100% before the pandemic.

Saxton explained that Dakota Access’ uncommitted rate tariff is $6.64/barrel. This is above the approximately $6.28/barrel prior to the pandemic. Bakken pipes are smaller than those in the Permian. Energy Transfer refused to comment for this story.