(Reuters) - Enbridge Inc (ENB.TO) and Enterprise Products (EPD.N) are seeking to expand their U.S. Seaway pipeline network in the race to ease a crude oil supply glut in the Midwest by shipping it to the Gulf Coast refining hub.
The companies will be seeking binding commitments from shippers to expand their Seaway pipeline partnership, which will carry crude produced in Canada and North Dakota from Cushing, Oklahoma to Houston, Texas once it is reversed, according to a joint press statement released on Tuesday.
Oil companies are eager to build new lines to get the crude from stockpiles in the Midwest to the giant Gulf Coast refining complex, where they can sell it for a hefty premium.
The Seaway open season will run from January 4 to February 10, 2012.
“Depending on the results of the open season, the Seaway pipeline would be looped or twinned to create additional capacity,” the companies said in the release, adding the additional capacity would be determined by shipper interest.
In addition, Enbridge and Enterprise will seek commitments to build an 85-mile (137-km) extension of Seaway to carry crude into the Port Arthur/Beaumont, Texas refining hub, which could be in operation by early 2014.
Enbridge and Enterprise plan to reverse the 500-mile Seaway line in the second quarter of next year, with initial flow rates out of Cushing of 150,000 barrels per day (bpd), rising to up to 400,000 barrels per day by the first quarter of 2013. If all goes according to plan, Seaway will be the first pipeline access from Cushing to the Gulf Coast.
“Leveraging the benefits of the existing Seaway pipeline system, which is expected to be fully contracted, provides shippers with accelerated access to the Gulf Coast refining market,” said Michael Creel, President of Enterprise’s general partner in the press statement.
“An expansion offers incremental capacity in excess of 400,000 barrels per day and could be available in early 2014.”
Due to strong support from shippers for the Seaway reversal and expansion, the companies said they do not plan to go forward with a separate Cushing to Gulf Coast pipeline partnership, the proposed 800,000 bpd Wrangler pipeline.
Increased production from North Dakota and Canada have sent U.S. crude prices to steep discounts to other regions this year. International benchmark Brent commanded a premium of $27 a barrel at one point.
Enbridge and Enterprise each have a 50 percent stake in Seaway. Enbridge purchased ConocoPhillips interest in Seaway for $1.15 billion. The acquisition was completed on Tuesday.
In addition to the Seaway expansion, Enbridge announced it would go forward with its proposed Gulf Coast Access project, which will ship crude from Flanagan, Illinois, to Cushing through a new pipeline. The crude will then move south to the Gulf Coast through Seaway.
Enbridge will hold an open season for shippers interested in additional capacity to ship from Flanagan to the Gulf Coast, coinciding with the Seaway open season.
Other plans to increase crude flows to the Gulf Coast include TransCanada’s (TRP.TO) proposed 700,000 bpd Canada to Texas Keystone pipeline, which has met with resistance from environmentalists and has become enmeshed in a stalled bill to extend the U.S. payroll tax cut.
Additional reporting by Matthew Robinson; Editing by Himani Sarkar