Plains All American and Marathon Petroleum — the two key stakeholders in the under-utilized Capline crude oil pipeline — are weighing entry into the field that is delivering Canadian and Bakken crude to the Gulf Coast.
Their scheme would involve reversing the flow of Capline, which has capacity of 1.2 million barrels per day from the Gulf Coast to refineries in the Patoka area of Illinois, but has experienced a decline in average throughput to 12.08 percent in 2011 from 19 percent in 2010 and was shut down briefly in March when demand fell below 8 percent.
Plains owns 54 percent of Capline, Marathon 33 percent and BP 13 percent.
Plains Chief Executive Officer Greg Armstrong told analysts in May that reversal of the line requires an “alignment of interests” by the partners, which means “everybody has to agree before anybody can do anything.”
Plains has the added advantage of owning storage and terminal facilities in Patoka, Cushing, Okla., and St. James, La., along with pipeline assets in West Texas, the Rockies and Midcontinent region.
But the line has suffered from a lack of demand for imported crudes from Patoka refineries, which have switched to using cheap Canadian crude as feedstock.
Reversing line complex
Armstrong said that reversing the pipeline is a complex matter because “there are certain flows that are currently going on Capline that we would need to reroute,” while additional capacity is required to bring crude into Patoka from the north.
Mike Palmer, Marathon’s senior vice president of supply, distribution and planning, told a conference call with investors his company is “looking into alternatives” for Capline along with other assets.
But Marathon Chief Executive Officer Gary Heminger took a low-key stance on reversing Capline, which delivers oil to the company’s 212,000 bpd refinery in Kentucky.
He said the Midwest would continue to require a source of Gulf Coast crude to serve refineries.
“You would need to ensure that you have a large pipeline that can still move that type of supply,” he said. “Maybe not 1 million bpd, but still move a significant amount of supply south to north if needed.”
Tim Evans, an energy analyst at Citi Futures, said it might make economic sense to use Capline to carry heavy crude from Canada and light, sweet crude from the Midwest to the Gulf Coast if the pipeline is faced with “handling low volumes.”
