US Gulf coast pipeline reshuffle nearly complete

OREANDA-NEWS. The first large-scale flows of Canadian heavy crude have arrived at the US Gulf coast, marking the culmination of years of changes in North American pipeline infrastructure.

The 600,000 b/d Flanagan South pipeline and the 450,000 b/d Seaway pipeline are sending 100pc heavy volumes from Flanagan, Illinois, through Cushing, Oklahoma, and on to Houston, Texas. They are the latest of a series of pipelines that have come online in recent years to serve refineries hungry for domestic and Canadian crudes.

The Flanagan South-Seaway combination is one more route for Canadian crude as TransCanada's Keystone XL remains stalled in the permitting process.

Enbridge chief executive Al Monaco called the new pipelines "the first large-volume solution for Canadian crude to the Gulf."

"We will compete against imports," Monaco said today at a ceremony to mark the recent startup of the Flanagan South and Seaway twin pipelines at the pipeline's terminus near Freeport, Texas.

Pipelines have shifted to accommodate rising onshore crude volumes, with rapid buildout of new pipelines and the reversal of old ones. The landscape has changed dramatically since the start of the shale boom. Over 2.8mn b/d of pipeline capacity now points towards Houston and its surrounding refineries, bringing Eagle Ford, West Texas Intermediate (WTI) and heavy Canadian volumes to the Gulf coast.

The spigot first opened in 2012 when the Seaway pipeline was reversed to allow volumes to flow from Cushing to Texas, helping drain a glut at Cushing. The line initially carried 150,000 b/d but ramped up to 400,000 b/d.

Also, Enterprise's 350,000 b/d line to Houston and Kinder Morgan's 300,000 b/d pipeline to Houston are carrying supply from Texas' Eagle Ford shale.

Another pipeline reversal and expansion was the 375,000 b/d Ho-Ho pipeline from Houston to Houma, Louisiana, which has cut off Houston's access to Louisiana Light Sweet (LLS). Instead, the region is being sent heavy Canadian volumes, WTI and Eagle Ford, and now more Louisiana refiners can access the light, sweet volumes hitting the Houston area.

The Gulf Coast pipeline started service last year at 700,000 b/d, also sending Cushing volumes to Texas.

"As a result of all of this connectivity we're now seeing the Houston light sweet crude oil market trade at a discount to Cushing light sweet crude oil because we simply have more than adequate supply in the Houston area of light crude quality," said Andy Lipow, president of Lipow Oil Associates.

The 275,000 b/d Longhorn pipeline came online in 2013. BridgeTex also came online in September 2014, and a connection with the Sunrise pipeline should allow it to send 300,000 b/d in west Texas crude to the Houston area. Both pipelines stop at Magellan Midstream Partners' East Houston terminal. Sunoco Logistics' 90,000 b/d Permian Express pipeline also started up last June, flowing west Texas crude to Nederland, Texas.

The new supply has overhauled long-standing pricing dynamics. WTI Midland is now being priced at the East Houston terminal, the receiving site for BridgeTex and Longhorn. And the spread between WCS at Hardisty, Alberta, and Nederland, Texas, has narrowed as the Flanagan South project has increased demand for heavy crude.

The 96,000 b/d Pegasus line remains partially shut since spilling 5,000 bl of Wabasca heavy crude in Arkansas in March 2013. The southern portion of the line was restarted, allowing crude to flow from Corsicana to Nederland, Texas.

At least one more pipeline is on its way to the region: Energy Transfer Partners' planned Bakken crude pipeline from North Dakota to Nederland.