Blame Canada: New pipes set to hit U.S. Gulf with heavy crude

Mon Jun 16, 2014 8:10am EDT
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By Catherine Ngai

NEW YORK (Reuters) - A new chapter in the North American oil revolution is about to open on the Texas coast, with two major pipelines poised this summer to deliver an unprecedented influx of heavy Canadian crude to U.S. refineries - and potentially beyond.

The anticipated startup of the Seaway Twin oil pipeline later this month will open the door for another 450,000 barrels per day (bpd) to flow from Cushing, Oklahoma, to oil tanks near Houston. A second line, Flanagan South, built at a cost of $2.6 billion, will start pumping even more Canadian crude from Illinois to Oklahoma.

They are part of a wave of investment that is reshaping the domestic crude oil market, reversing the flow of oil that traditionally moved inland from the coast and increasingly replacing imports from long-time suppliers Mexico and Venezuela, whose heavy crudes face growing competition from Canada's.

"There is a new landscape of connectivity coming for the second half of the year," said Michael Cohen, an analyst at Barclays in New York.

The one-two punch may land hardest on domestic crudes such as Southern Green Canyon, an offshore, medium grade delivered into Nederland, Texas. It may initially spare some rivals like Mars, which is traded in Louisiana, where new pipelines are slow to deliver Canadian oil.

The first jolt will come from the expansion of the Seaway pipeline, a 400-mile conduit that was reversed in 2012 to accommodate the unexpected flow of burgeoning Canadian and North Dakota crude in the north to refiners in the south.

In 2012, operators Enterprise Product Partners and Enbridge Inc got commitments to more than double its capacity to a total 850,000 bpd with a $2 billion parallel line called the Seaway Twin or Loop. That should begin pumping by the end of this month, the company said this month.

Other projects will also offer new trading flexibility along the Houston Ship Channel, such as a 6 million barrel expansion of Enterprise's Echo storage terminal in early 2015, forcing market participants to grapple with shifting patterns, volatile prices and fluctuating stockpiles.   Continued...