By Dina O'Meara, Calgary Herald, May 17, 2012
First crude to flow directly to Texas refiners from Cushing hub
CALGARY — First oil will flow south to refiners in the U.S. Gulf Coast this weekend on the Seaway pipeline, providing slight relief to bloated storage in the Midwest and to discounted Canadian crude.
Enbridge Inc. and partner Enterprise Products Partners said Thursday the 150,000 barrel-per-day line reversal was complete, and oil from Cushing, Oklahoma would be arriving in Houston, Texas within two weeks.
Markets responded to the news by shrinking the discount of West Texas Intermediate to Europe’s Brent by $2 to approximately $14 US per barrel on visions of slowly debottlenecking record amounts of oil at Cushing.
The difference had been as high as $30 earlier this year.
Even more capacity will be required to truly narrow the gap between West Texas Intermediate and Brent, say analysts.
“(Seaway) a modest help, not a panacea, and largely expected,” said Chad Friess, analyst with UBS Securities.
Much of the market impact of the pipeline had been included in pricing in the months since Enbridge announced the reversal project, he said.
Seaway is the first direct link to refineries in Texas and Louisiana from the storage hub, the delivery point for U.S. crude futures.
The move to reverse Seaway, which had moved oil north to Cushing since 1995, was announced last November shortly after Enbridge bought ConocoPhillips’ 50 per cent interest in the line for $1.5-billion, then teamed with remaining partner Enterprise.
Light oil from Canada and the United States has been trading at a wide discount to its European peer and global benchmark Brent crude for months as low demand, rising production and lack of access to refiners created a glut at the storage terminal.
By the end of March, the partners said they would be expanding the pipeline’s capacity to 400,000 bpd by early 2013 on strong shipper interest.
Next year’s Seaway expansion will reduce pressure further at Cushing, but the bloat likely will continue until substantial capacity additions to the Gulf Coast refinery hub, such as TransCanada Corp.’s 700,000 bpd heavy oil Keystone XL project in 2014, are launched.
“Our view is that Seaway’s reversal does not make much of a difference to Midwest balances,” said Barclays analyst Amrita Sen. “Domestic production growth and Canadian flows are likely to dwarf (Seaway’s) 150,000 barrel per day take-away capacity.”
Crude oil inventories at Cushing reached a record level of 45.13 million barrels last week, and U.S. inventories were at a 21-year high, the U.S. Energy Information said Wednesday.
Much of the supply is coming from unprecedented oil production from North Dakota, where technology has unleashed tight oil supply, and from rising Canadian production, both conventional and from the oilsands.
Refinery outages during the quarter, planned and unplanned, further widened price differential between Canadian crudes and WTI.
On Thursday West Canadian Select, a heavy oil blend, sold at a 17 per cent discount to WTI, down from a 35 per cent discount earlier this year.
Synthetic crude was selling at parity to its U.S. counterpart, from a 10 per cent discount most of the first quarter.
Edmonton Par, a light oil blend, reduced its discount to five per cent from almost 20 per cent.
“If all these pipelines come onstream, it’s going to improve the price for light oils like Edmonton Par, synthetic crude, WTI versus the global benchmark of Brent,” said Friess. “And as you open more access to the Gulf Coast for heavy oil it should make that price less volatile.”
With files from Reuters
domeara@calgaryherald.com
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