Reuters: Regulatory News: UPDATE 4-Pipeline partners to double Cushing-Gulf oil conduit

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UPDATE 4-Pipeline partners to double Cushing-Gulf oil conduit Mar 27th 2012, 16:13 Tue Mar 27, 2012 12:13pm EDT * Enbridge, Enterprise to more than double Seaway Pipeline capacity * The plan would add 450,000 bpd to the Seaway system * Enbridge to also increase size of Flanagan South Pipeline * New lines to narrow price oil price differentials in Midwest CALGARY, Alberta, March 27 (Reuters) - Enbridge Inc and Enterprise Products Partners LP will more than double the capacity of the Seaway Pipeline and expand another line from Illinois, further easing a major oil glut in the United States. The firms are pumping more than $2 billion into expanding the U.S. pipeline network after securing sufficient customer commitments for shipping a growing surplus of crude in the U.S. Midwest, which has been inundated with fast-rising supplies of Canadian and North Dakota oil, to refiners along the Gulf Coast. The projects, when completed by mid-2014, should help bring a conclusive end to the glut of landlocked U.S. crude that has caused an unprecedented distortion in oil markets, driving the price of U.S. benchmark West Texas Intermediate crude to as much as $28 a barrel below European Brent crude. Along with a handful of other lines underway, including the southern leg of TransCanada Corp's Keystone XL, nearly 2 million barrels a day (bpd) of new pipeline capacity will be ready to ship inland crude oil south, according to Simmons & Co. analysts, helping to eradicate the deep crude oil discounts that had padded profits for Midwest refiners like Marathon. The expansion would add 450,000 barrels per day (bpd) of capacity to the Seaway system, raising its capacity to 850,000 bpd by mid-2014, Enbridge said in a statement. The firms agreed to reverse the Seaway line last year, allowing it to pump crude from the Cushing, Oklahoma, oil hub to the Texas coast. The company also plans to increase the size of its Flanagan South Pipeline from Flanagan, Illinois to Cushing to a diameter of 36 inches, from the originally planned 30-inch line. It will have an initial capacity of 585,000 bpd and can be expanded to 800,000 bpd with additional pumps to meet rising production from Canada's oil sands and North Dakota's Bakken field. The estimated cost of the Flanagan line would increase to $2.8 billion from $1.9 billion. Enbridge's share of the cost of the Seaway pipeline twin line and extension is expected to be about $1 billion. The firms will also extend the Seaway line from Houston, Texas, to the refining hub of Port Arthur/Beaumont. The expanded route, which the companies had signaled earlier this year with an "open season" during which they could test customer demand, will compete with the 700,000 bpd southern leg of Keystone XL line, slated to be complete in 2013. Unlike the northern Canada-to-U.S. route for Keystone XL, however, these lines will not be subject to a State Department review for approval. And so far environmental groups have not voiced major objections to these type of projects. President Barack Obama last week pledged to accelerate approval of the southern leg of the pipeline, seeking to deflect criticism that his rejection of the full project helped drive up gasoline prices. Seaway is the first project on the drawing boards to alleviate that glut, which last year caused a record gap between U.S. crude and the European benchmark Brent. U.S. crude's discount to Brent hit a record near $28 in October. The spread is now around $18 a barrel, enough to make it economically profitable to ship oil by barge or rail, which are more costly alternatives to pipelines. "We're getting back to full liquidity where the cost differential is roughly equal to the transportation differential," said Steven Paget, an analyst at FirstEnergy Capital. "That's never a bad thing." Cushing has filled as rising production from Canada's oil sands and North Dakota's Bakken and Three Forks fields flowed into the oil hub, overwhelming the needs of Midwest refiners while little pipeline capacity was available to take it to the gulf coast refining hub. "We expect the pace of infrastructure development to exceed production growth in 2013 and 2014, which should reduce discounts closer to rail transportation costs and pipeline tariffs," Jeff Dietert, an analyst at Simmons & Co, wrote in a research note. The reversed Seaway line could be in service at an initial capacity of 150,000 bpd by June 1, Enbridge said. Additional pumps and modifications needed to ramp up flow rates to 400,000 bpd will be completed by early 2013. Separately, Enbridge said the Flanagan South Pipeline will be constructed along the route of Enbridge's existing Spearhead Pipeline between the Flanagan Terminal, southeast of Chicago, to Enbridge's Cushing Terminal in Oklahoma. Link this Share this Digg this Email Reprints

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