Enbridge, Enterprise to double Seaway oil pipeline
Enbridge Inc and Enterprise Products Partners LP will more than double capacity of the Seaway Pipeline and expand another line from Illinois to ship more crude oil out of the glutted U.S. Midwest.
The companies said late on Monday they will invest more than $2 billion in expanding the U.S. pipeline network after securing sufficient customer commitments for shipping a growing surplus of crude in the U.S. Midwest to refiners along the Gulf Coast.
The projects, when completed by mid-2014, should help end the glut of landlocked U.S. crude that has driven the price of U.S. benchmark West Texas Intermediate crude below the price of European Brent crude by as much as $28 a barrel.
Fast-rising supplies of crude from Canada's oil sands and the U.S. state of North Dakota have inundated the U.S. Midwest, distorting global oil markets. The deep regional crude oil discount that has padded profits for Midwest refiners like Marathon.
Along with a handful of other lines underway, including the southern leg of TransCanada Corp's Keystone XL, nearly 2 million barrels a day (bpd) of new pipeline capacity will ultimately be ready to ship inland crude south, according to Simmons & Co. analysts.
The expansion would add 450,000 barrels per day (bpd) of capacity to the Seaway system, raising its capacity to 850,000 bpd by mid-2014, Enbridge said in a statement. The companies agreed to reverse the Seaway line last year, allowing it to pump crude from the Cushing, Oklahoma, oil hub to the Texas coast.
The company also plans to increase the size of its Flanagan South Pipeline from Flanagan, Illinois to Cushing to a diameter of 36 inches, from the originally planned 30-inch line. It will have an initial capacity of 585,000 bpd and can be expanded to 800,000 bpd with additional pumps to meet rising production from Canada's oil sands and North Dakota's Bakken field.
The estimated cost of the Flanagan line would increase to $2.8 billion from $1.9 billion. Enbridge's share of the cost of the Seaway pipeline twin line and extension is expected to be about $1 billion.
The companies will also extend the Seaway line from Houston, Texas, to the refining hub of Port Arthur/Beaumont.
The expanded route, which the companies had signaled earlier this year with an open season during which they could test customer demand, will compete with the 700,000 bpd southern leg of Keystone XL line, slated to be complete in 2013.
Unlike the northern Canada-to-U.S. route for Keystone XL, however, these lines will not be subject to a State Department review for approval.
The environmental groups that united to block the full Keystone XL project have not so far voiced major objections to the of projects. That may change, as their opposition to importing rising volumes of crude from the tar sands of northern Alberta remains firm and they look to regulators to block approvals for the two lines.
The southern leg of Keystone XL is still going to be a tar sands pipeline and Seaway also appears to be oriented to tar sands, said Anthony Swift, an attorney at the Natural Resources Defense Council. All the safety risks ... the spill risks appear to be present.
U.S. President Barack Obama last week pledged to accelerate approval of the southern leg of the Keystone XL pipeline, seeking to deflect criticism from political opponents who said his rejection of the full project helped drive up gasoline prices.
Seaway is the first project on the drawing boards to alleviate that glut, which last year caused a record gap between U.S. crude and the European benchmark Brent.
U.S. crude's discount to Brent hit a record near $28 in October. The spread is now around $18 a barrel, enough to make it economically profitable to ship oil by barge or rail, more costly alternatives to pipelines.
We're getting back to full liquidity where the cost differential is roughly equal to the transportation differential, said Steven Paget, an analyst at FirstEnergy Capital. That's never a bad thing.
We expect the pace of infrastructure development to exceed production growth in 2013 and 2014, which should reduce discounts closer to rail transportation costs and pipeline tariffs, Jeff Dietert, an analyst at Simmons & Co, wrote in a research note.
The reversed Seaway line could be in service at an initial capacity of 150,000 bpd by June 1, Enbridge said. Additional pumps and modifications needed to ramp up flow rates to 400,000 bpd will be completed by early 2013.
Separately, Enbridge said the Flanagan South Pipeline will be constructed along the route of Enbridge's existing Spearhead Pipeline between the Flanagan Terminal, southeast of Chicago, to Enbridge's Cushing Terminal in Oklahoma.
(Reporting by Scott Haggett in Calgary and Arpita Mukherjee and NR Sethuraman in Bangalore; Editing by Alden Bentley and David Gregorio)
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