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Vol. 18, No. 3 Week of January 20, 2013
Providing coverage of Bakken oil and gas

Seaway launches new era

The Seaway Crude Oil Pipeline Co. has taken the biggest step so far toward reducing transportation bottlenecks between the U.S. Midwest and the Gulf Coast, setting the stage for significant changes by mid-2014 that will bring relief to Bakken producers.

The 50-50 joint venture by affiliates of Enbridge and Enterprise Products Partners has completed a reversal of 500 miles of the Seaway system, increasing the flow between Cushing, Okla., and Houston to 400,000 barrels per day from 150,000 bpd.

The partnership is now targeting 850,000 bpd by the first quarter of 2014 when it introduces a new twin line parallel to Seaway.

Operating separately, Enbridge and Enterprise are also well advanced with other schemes to handle the burgeoning growth of U.S. and Canadian crude oil production and unlock the value of that crude.

Enterprise is working on three other pipelines — Texas Express, Rocky Mountain and Front Range — to carry natural gas liquids, targeting an initial 465,000 bpd by the start of 2014.

Enbridge has set mid-2014 to start Flanagan South from Flanagan, Ill., to Cushing, with initial capacity of 590,000 bpd, expandable to 800,000 bpd.

That line will pick up both Alberta oil sands crude and crude from Bakken off Enbridge’s Mainline system to Chicago.

Request for constant flows

Enbridge is also pressing producers and refineries to change their practices and take advantage of an opportunity to cash in on improved prices.

It has asked producers to shift to constant flows from “lumpy” deliveries of crude to pipelines, achieving a more predictable flow stream.

As well, Enbridge is urging refineries not to store surplus oil in tanks, thus avoiding backups and contributing to a more efficient use of pipelines.

The message to refineries is to sell their excess crude elsewhere, said Vern Yu, Enbridge vice president of business and market development.

He said the affected volumes could range from 100,000 bpd to 200,000 bpd.

Yu told the Globe and Mail that “industry recognizes that we’re so tight on capacity right now that if they don’t do this they could get shut in,” adding “the world is different when there is very little spare capacity.”

Pressure building

The pressure is building fast, with Imperial Oil due to add 110,000 bpd of new production from its Kearl oil sands mine, while Cenovus Energy and MEG Energy are adding to their volumes.

Overall, Enbridge expects to introduce 300,000 bpd of new pipeline capacity by the end of 2013 and 600,000 bpd in 2014, while TransCanada has its fingers crossed that the Obama administration will approve the 830,000 bpd northern leg of Keystone XL.

For now, Andy Lipow of Lipow Oil Associates said he expects the Seaway reversal will allow Gulf Coast refineries to take advantage of the new Midwest volumes by running high operating rates and turning crude into a petroleum products surplus at a time when U.S. gasoline demand is 14 percent below the five-year average.

Chi Chow, an analyst with Macquarie Capital, echoed that thought by suggesting incremental light sweet crude flows will result in lower product prices.

By the end of this quarter, the Gulf Coast market is expected to receive more light sweet and light sour crude from Eagle Ford in south Texas and the Permian basin in west Texas, with Eagle Ford shippers destined to have access to 1 million bpd of pipeline capacity, more than they currently producer.

Barclays analyst Harry Mateer expects the Seaway pipeline and other possible infrastructure will have the dual effect of reducing the discount of West Texas Intermediate relative to Gulf Coast crudes.

Enbridge said the initial 150,000 bpd of capacity Seaway has narrowed the gap between WTI and the international Brent benchmark by $3 per barrel.

—Gary Park



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