Cushing storage will fill up in two months: Plains

OREANDA-NEWS. February 06, 2015. Storage in the key US hub at Cushing, Oklahoma, will fill up in two months, Plains All American Pipeline president Harry Pefanis said today.

"Once storage gets full at Cushing you should see differentials normalize again," allowing rail to take crude to highest-price markets, Pefanis said. "Cushing's going at a higher rate. In two months it'll be full."

Inventories in the pricing and storage hub of Cushing, Oklahoma, rose by 2.5mn bl last week, the ninth consecutive week of gains, to 41.4mn bl, the highest level seen in a year. There is about 85mn bl in storage available at Cushing. New pipeline capacity into the crude and pipeline hub could fill up Cushing and send the Brent-WTI spread wide again, said Lipow Oil Associates president Andy Lipow at the Argus Crude Summit last week.

The midstream company expects low commodity prices to affect how much crude is moved by rail, and cut the midpoint of its 2015 earnings guidance by 6.5pc to \\\$2.35bn from about \\\$2.5bn.

Plains is bringing online two new rail projects – its loading facility in Kerrobert, Saskatchewan will come online in the middle of this year, while an expansion project in St James, Louisiana, to take heavy crude by rail will be online in the third quarter. It is also building a pipeline from Cheyenne, Wyoming, to its Carr, Colorado, rail terminal.

Plains will bring its Cactus pipeline into partial service at 50,000-100,000 b/d in April 2015, sending crude and condensate from west Texas to the Texas Gulf coast. The pipeline will ramp up to 150,000 b/d by August and 330,000 b/d by the third quarter of 2016.

Any reversal of the company's 1.2mn b/d Capline pipeline from St James to Patoka, Illinois, would have to happen after the Diamond pipeline is built, Plains said today. The 200,000 b/d line will carry crude from Cushing to Valero's 190,000 b/d refinery in Memphis, Tennessee, and will be completed in 2016.

The chronically underutilized Capline has been a candidate for reversal, but Plains needs the other two owners, Marathon Petroleum and BP, to agree.

The companies are currently conducting engineering studies on work needed to reverse the line. A reversal of the line would increase supply to the midcontinent and affect refineries there, a tricky point for co-owner BP, which last year completed a massive expansion of heavy, sour crude processing capacity at its 410,000 b/d refinery in Whiting, Indiana. BP no longer operates refining capacity in the US Gulf coast.

Marathon Petroleum operates heavy crude capacity at its 120,000 b/d refinery in Detroit, Michigan, but would also like to see more heavy crude available to its 522,000 b/d refinery in Garyville, Louisiana. A project providing heavy crude greater access to the eastern US Gulf coast could increase competition for the feedstock from the midcontinent.