Making Sense of Oil Pipelines in North America

abarrelfullabarrelfull wrote on 18 Apr 2013 09:00
Tags: canada pipeline usa

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I am far from an expert in pipelines, or the intricacies of the North American oil markets, so my head starts to spin when trying to make sense of what is happening to WTI.

So for my sake as much as yours, here is my take on the WTI / Brent differential and the projects that will impact it.

  • Getting Crude Out of Cushing
  • There is too much crude going to Cushing, Oklahoma and there is a need to get it to the coast where majority of the nations refineries are. The most important project here is the now divided project, Keystone XL Pipeline Project. It will carry 830,000 barrels of oil per day down to Nederland, Texas. Completion is expected at the end of 2013 or beginning of 2014. The segment running from Canada is still awaiting approval.
  • Following its reversal, the Seaway Crude Oil Pipeline began operating at 150,000 bpd in 2012. This increased to 400,000 bpd in 2013. Next year it is expected that the twinning project will be completed, taking capacity to 800,000 bpd.
  • Outlet for Canadian Oil Sands
  • With so much oil in Oklahoma, and with the USA producing ever more of its own, the Canadians have finally started to consider other options. First they are looking at getting their oil into the hands of eager Asian buyers, not least the rapidly growing appetites of the Middle Kingdom.
  • There is an existing pipeline running to the Pacific, the Trans Mountain Pipeline, running from Edmonton, Alberta to Burnaby, British Columbia. The pipeline is always full and Kinder Morgan has launched the Trans Mountain Pipeline Expansion Project to transport an additional 890,000 bpd of oil sands crude.
  • Competitor Enbridge is promoting the Northern Gateway Oil Pipeline Project, which will run to Kitimat, British Colombia. It will have a capacity of 525,000 barrels of oil per day. Both of these projects are aiming to be completed in 2017.
  • One would expect the first priority of Canada would be to feed its own refineries. Yet the project designed to do just that, was the last to be announced. Enbridge Line 9 Oil Pipeline is a pipeline that runs west, to bring imported oil into Ontario. Today of course no-one in Quebec or Ontario wants imported oil, when the home grown variety is so cheap. Or at least would be if it could be brought to the province. So Enbridge is reversing the flow, to bring Canadian crude to Quebec by 2014. Capacity will be 300,000 bpd
  • Rival Transcanada plans the competing Energy East Crude Oil Pipeline which is a conversion of a gas pipeline. Capacity is planned at 850,000 barrels of crude oil per day, and the target date is 2017.
  • American Oil Bypassing Cushing
  • With the Eagle Ford Shale Oil Field and the Bakken Oil Field booming, there is a new need to transport crude oil from North Dakota and Eastern Texas. Much of this crude finds its way to Cushing, therefore creating the problem in the first place. Sending it directly to where it is needed, would be a much better solution.
  • One of the projects designed for such a mission is the Patoka St James Crude Oil Pipeline Project, a conversion of a gas pipeline, which will deliver crude from Illinois to Louisiana. Illinois is the recipient of a number of pipelines from both Canada and North Dakota. The project could transport as much as 660,000 bpd
  • In Texas, the Bridgetex Oil Pipeline, a Magellan Midstream Partners project, will bring close to 300,000 bpd crude from the Permian Basin to Texas City. It should be in operation in 2014.
  • The Crane-to-Houston Crude Oil Pipeline is a conversion from refined products of part of the Longhorn Oil Products Pipeline. Originally planned to carry 135,000 bpd, it will now have 225,000 bpd when it comes onstream in the next few weeks.
  • Conclusion
  • WTI price will normalise in 2014, and only Canadian crude will be unreasonably cheap, up until 2017

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