Tags: Canada | Pipeline | US | Oil

Canada Pipeline Firms Sprint to End US Oil Glut

Wednesday, 16 Nov 2011 01:22 PM

Two major pipeline projects announced Wednesday looked set to bring a surprisingly swift end to an unprecedented distortion in the U.S. oil market, unclogging a year-long bottleneck that has weighed heavily on Midwest crude prices.

After purchasing ConocoPhillips stake in the 350,000 barrel per day Seaway pipeline for $1.15 billion, Enbridge and new partner Enterprise Products Partners said they plan to reverse the line's flow to send crude locked up at the Cushing, Oklahoma oil hub to the Texas coast.

Separately, rival TransCanada said it could begin construction of a similar $600 million Cushing to Gulf Coast pipeline spur of its proposed Keystone XL pipeline early next year, pending consultations with the U.S. State Department, which last week postponed approval of the full-length Canada-to-Texas line to study a new route.

The companies are racing to unlock a glut of crude in the U.S. Midwest, which has built up over the year due to rising supplies from Canada and North Dakota. They aim to ship it to the Gulf Coast where it will fetch a hefty premium. Doing so will rob mid-continent refiners of cheap crude, but help producers achieve a higher price for their output.

Oil traders reacted swiftly to the news. U.S. crude surged by nearly $2 a barrel while Brent crude remained $1 lower — narrowing the so-called Brent/WTI spread to below $10 a barrel for the first time since April.

The spread, rarely more than a few dollars in past years, surged this year due to ballooning inventories around the Cushing, Oklahoma delivery point for the U.S. oil contract and hit a record $28 a barrel in October.

"We believe that reversing the direction of crude oil movement on Seaway and the construction of additional infrastructure will accelerate access to Gulf Coast markets, reduce transportation costs, improve both producer and refiner economics and hasten the development of North America's crude oil reserves," Michael A. Creel, Enterprise president and chief executive officer said in a statement.

The reversed Seaway line could be in service at an initial capacity of 150,000 bpd by the second quarter of 2012, Enbridge said. Station additions and modifications needed to ramp up flow rates to 400,000 bpd will be completed by early 2013.

Enbridge and Enterprise also plan to construct a pipeline system to link Seaway into Enterprises's existing ECHO crude terminal southeast of Houston to ease transport to regional plants.

Enbridge's acquisition of the stake in Seaway is expected to be completed in December, ConocoPhillips said. Conoco, which traders said had resisted pressure to reverse the line because its mid-continent refiners were benefiting from the cheaper feedstock, had already said it was selling its stake.

Shares of U.S. oil refiners Valero Energy Corp. and Marathon Petroleum Corp., which have Midwest plants that have enjoyed strong margins this year due low price and high inventories this year, saw shares drop after news of the reversal.

TRANSCANADA TO PURSUE CUSHING-TO-GULF PLAN

TransCanada also sought to rally back from the crushing delay to its $7 billion Keystone XL pipeline, which had faced an upswell of environmental resistance. Unable to build the cross-border portion of the line without State Department approval, the firm now looked set to build a much shorter but critical leg connecting the Cushing hub to the Gulf Coast.

Alex Pourbaix, president of the company's oil pipelines division, said TransCanada is hearing from shippers that they would like construction of the line to proceed even as it waits for full approval of Keystone late next year or in 2013.

In another deal, Conoco also said it will sell its 16.55 percent interest in Colonial Pipeline Co. and Colonial Ventures LLC to a subsidiary of pension fund Caisse de Depot et Placement du Quebec for $850 million.

Caisse, Canada's largest pension fund administrator with C$199 billion in assets under management is among the Canadian pension funds who are increasingly looking toward direct investments in the resources sector, having emerged from the global financial crisis as some of the world's most deep-pocketed private equity investors.

Conoco's pipeline deals, part of its strategy to shed assets it no longer considers strategic, totaled $2 billion, the U.S. oil company said.

The deals are part of the company's effort to improve its valuation with up to $20 billion of asset sales targeted to properties the company no longer considers strategic. Conoco, the third largest U.S. oil company, also has plans to spin off its refining assets next year.

© 2017 Thomson/Reuters. All rights reserved.

   
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Two major pipeline projects announced Wednesday looked set to bring a surprisingly swift end to an unprecedented distortion in the U.S. oil market, unclogging a year-long bottleneck that has weighed heavily on Midwest crude prices. After purchasing ConocoPhillips stake in...
Canada,Pipeline,US,Oil
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2011-22-16
Wednesday, 16 Nov 2011 01:22 PM
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