Seaway pipeline reversal ahead of schedule
An oil glut in the U.S. Midwest could ease sooner than expected, if regulators approve an early start to the Seaway pipeline reversal, but prices likely won’t respond as quickly, warned analysts.
Partners in the project, Calgary-based Enbridge Inc. and Enterprise Product Partners, applied for a May 17 start up date on the 150,000 barrel per day pipeline, which would flow crude from bloated storage hub Cushing, Okla., to the U.S. Gulf Coast.
The actual start will depend on regulators and shippers, said Rick Rainey, an Enterprise Product Partners spokesman.
“We don’t really have an exact date as to when first volumes will begin flowing, but we are running ahead of schedule and we are looking at the later part of May at this point,” Rainey said Monday.
The Seaway launch, a reversal in direction of an existing pipeline, is expected to alleviate pricing pressure at the hub, which has seen Canadian crude selling at a wide discount to its U.S. counterpart, West Texas Intermediate, and offshore Brent prices.
Western Canada Select heavy oil blend is trading around $20 below U.S. benchmark WTI for May, as it competes for take-away capacity with rapidly rising Bakken barrels from North Dakota.
Production from that state has more than quadrupled since 2005, reaching 558,000 bpd in February, according to data from the Industrial Commission of North Dakota, Oil & Gas division. Volumes are expected to increase by 10,000 bpd to 20,000 bpd a month this year, said analyst Rob Laird, with ATB Financial.
The Seaway launch a couple of weeks early will be positive for Canadian producers, but not a game-changer, he said.
“You need a massive shift in capacity to make a difference,” Laird said.
“It’s momentum in the right direction, absolutely, but there is just so much pent-up demand in that storage area of (the U.S. Midwest) to get that oil out down to the Gulf Coast, it will just start helping solve that problem and not the problem that Canadian producers have.”
Canadian producers move their oil in virtually one direction, south, to U.S. refiners in the Midwest and the Gulf Coast, the largest refining hub in North America. Once the price differential widens, as it has in the past quarter, it takes a long time to recover and narrow, he said.
Enbridge and Enterprise plan to expand the Seaway reversal to 400,000 bpd by 2013, and build a second pipeline along the first to boost total capacity to 850,000 bpd.
In addition to twinning Seaway, Enbridge said it would be increasing the pipeline diameter of its Flanagan South expansion to 36 inches from 30 inches, bumping capacity up to 585,000 bpd. With Enbridge’s existing Spearhead line, producers will be able to flow 775,000 bpd to Cushing from Flanigan, Ill., by mid2014.
The Bakken shale, named after a farmer, Henry Bakken, under whose land the formation was discovered, extends from North Dakota and Montana into Alberta, Saskatchewan and Manitoba.
Enterprise Product’s Rainey said hard-working crews and good weather are behind the earlier Seaway timeline
“Things are coming together at just the right time, and we’re confident that we’re going to be able to bring it in ahead of schedule,” he said.
The April 13 filing with the U.S. Federal Energy Regulatory Commission also laid out proposed tariffs for shippers ranging from $2.07 U.S. to $4.32 US a barrel, depending on the grade of crude and the contract commitment.
The review period usually takes 30 days, a FERC source said. Shippers will have 15 days to comment on the tariffs, Seaway partners will have another five days to respond.
The pipeline will take about 2.5 million barrels of oil to fill, crude which will take 15 days to move to the Freeport, Texas terminal, Rainey said. The transit time will drop once the capacity increases are put in as the higher volume of oil will boost pressures and move the crude more rapidly, he explained.