Seaway Pipeline Fully Booked Once Reversal Begins

A pipeline that is set to begin transporting crude oil from the Midwest to refiners on the Gulf Coast later this year is already fully booked through its initial phase, a company spokesman said, the latest sign of the intense interest in moving crude trapped in the central U.S.

The Seaway pipeline is set to begin transporting 150,000 barrels a day of crude from Cushing, Okla., to the Gulf Coast starting June 1, expanding to 400,000 barrels a day starting in the first quarter of 2013. Currently, the pipeline moves crude in the opposite direction toward Cushing.

The pipeline is fully nominated by shippers once the pipeline's reversal kicks in and begins shipping 150,000 barrels a day, said Rick Rainey, spokesman for Enterprise Products Partners LP (EPD). The company expects the pipeline to remain fully booked once it expands to 400,000 barrels a day, but those contracts have not yet been firmed up, Rainey said.

Rainey added that a small amount of pipeline capacity--about 10%--remains uncommitted to accommodate last-minute shippers.

On Thursday, pipeline operators completed "purging" the line, meaning that they have emptied the pipeline of oil in preparation for its reversal, Rainey said.

The reversal of Seaway, a joint venture between Enterprise and Enbridge Inc. (ENB), is expected to ease an oil glut that has plagued the Midwest for at least a year. The glut has been caused by surging oil output in North Dakota, Canada and elsewhere and has overwhelmed pipelines and refineries in the area.

The only reason WTI has been discounted to Brent is that it is bottlenecked at Cushing. With a 400,000 bpd flow going to the gulf, that surplus disappears. They'll refine it or export it, either way it is less light oil available here in the midwest. Gasoline is already at $4.00 in Michigan, Indiana and Illinois, $5.00 is just around the corner. If the GOP doesn't rub Obama's face in it, they're fools!

Mike

With a 400,000 bpd flow going to the gulf, that surplus disappears. They'll refine it or export it,

Export it? No way. We may export the refined product, but we are importing a huge amount of crude oil.

The gulf coast alone imports far more oil than carried by this pipeline AND the Keystone extension combined.

either way it is less light oil available here in the midwest

Less oil available? You are not going to have any shortages. This is mainly going to displace rail traffic to the same refineries.

If there is already rail traffic bringing this oil (in Cushing) back to Gulf Coast Refineries, why is WTI selling at a steep discount to other oils (Brent in particular)?

Because Truck and Rail is rather expensive compared to pipeline shipment. While the stock levels of crude in Cushing are quite high, they have not been just piling up at 400,000 barrels per day for the past couple years.

The oil is getting moved. It may take many different routes and the rail capacity at the typical refinery is not going to handle near that capacity. It becomes expensive to ship this way to many different refineries and that drive the localized price down.

We have the same issue going on in South Texas. The Eagle Ford Shale formation is producing so much oil the existing pipelines cannot move it, nor are they all in the best location. In that area, there is not a lot of rail loading stations (like already exist in Cushing). Instead it is moving by truck on the road at a significant discount. The pipelines are being built, but it takes year from when the need is first realized, through the land aquisition, engineering, purchase of pumps, pipes and materials, construction and start up.

I was on a project building a truck unloading facility last year for this reason. The area refineries truck racks were being overwhelmed with traffic. We crossed a river with a short pipeline to get to another area to split up the truck traffic and built multiple truck unloading stations with tanks and pumps. It is a temporary fix, we also had to add flanges for future pipeline tie-ins once they arrive.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.