Confirming the concerned buzz permeating from Permian Basin producers, Pioneer Natural Resources chief executive Scott Sheffield forewarned attendees at Hart Energy’s DUG conference last week in Fort Worth that the rapidly rising flow of oil out of the basin is progressing toward a constriction unless midstream providers act quickly to expand takeaway capacity.

“One of the biggest issues we have in the Permian Basin is just getting the oil out,” Sheffield said. “It’s tight right now. We cannot afford to have a $25 discount (to West Texas Intermediate) like you’ve seen in the Bakken.”

The current discount for a barrel of Midland sweet crude to prices at Cushing, Oklahoma, ranges between $4 and $5, but has been as high as $9 recently. Historically, the discount has trended about 50 cents.

Current takeaway capacity in the Permian is 1.1 million barrels per day, which is more than 90% utilized with current spare capacity hovering between 50,000 to 100,000 barrels per day. That is a narrow cushion that can squeeze to zero instantly if a local refinery goes on downtime, he noted. “Any little hiccup can cause an issue.”

Local refineries absorb about 20% of Permian production.

The rig count in the Permian is approaching 500, a five-fold increase in the last three years, with drilling reinvigorated by high oil prices and a new era of unconventional drilling targets in the multi-layered basin. Such activity is growing production by 150,000 barrels of oil per day annually from the region, Sheffield projected.

In the near term, Magellan Midstream’s reversal of its Houston-to-El Paso pipeline will add capacity of 225,000 barrels per day in the next year, along with another 220,000 barrels of capacity per day coming online from other operators for a total of 345,000 extra barrels by mid-2013.

“You can see in two years we will add 300,000 barrels per day” of new production, he said, essentially utilizing all the planned extra capacity. “In two years we could be full again.”

Sheffield estimates production out of the basin to once again reach 2 million barrels per day by 2020, equaling peak production from the Permian achieved in 1975.

Anticipating this, he lobbied for an urgent commitment to an additional 500,000 barrel capacity of new projects from midstream providers, which he said have to get comfortable with new unconventional shale plays before committing to expansion projects.

“We need these projects online by the end of 2014 and through 2016.”

And when they do, he hopes they will go to the Gulf Coast and California rather than Cushing, which is overwhelmed with capacity.

“We don’t need any more lines to Cushing. There’s too much coming into Cushing from the Niobrara play, the Mississippi lime play, the Bakken shale and, eventually, the Canadian oilsands.”

Short of timely midstream expansion, Permian operators will have to rely on rail and trucking for crude outtake, but pipelines remain the best option by far, he said. “We have to be able to get the oil out. A lot more pipelines have to be built.”