Livin' on the Edge - Are the Capline Pipeline and LOOP About to Enter a New Era?

The three co-owners of the 1.2-MMb/d Capline Pipeline from St. James, LA, to Patoka, IL, have begun assessing whether there is sufficient shipper interest in reversing the flow of one of the U.S.’s largest crude oil pipelines in the early 2020s. There are good reasons both for ending Capline’s long run as a northbound-flowing pipe and for repurposing the pipeline to help transport heavy western Canadian oil and other crudes south to refineries in eastern Louisiana and Mississippi and to export markets. But there also are logical questions to ask, such as why Capline’s owners envision sending only 300 Mb/d south on the pipe, and why they don’t see the reversal occurring for five years. Today, we examine the forces behind Capline’s possible reversal and the benefits that flipping the pipe’s direction might provide.

Very Large Crude Carriers offer economies of scale and are the oil transporters of choice for shippers moving massive volumes of crude from the U.S. Gulf Coast to distant customers in Europe and Asia. VLCCs also can serve as cost-effective floating storage — in the current contango market, a growing number of these 2-MMbbl behemoths are being used to stockpile crude until its value increases in the coming months. VLCCs can be loaded to the gills through reverse lightering at a number of deepwater points off the coast of Texas, but only one facility, the Louisiana Offshore Oil Port, can fill the supertankers to the brim at the port itself. LOOP also can receive fully loaded VLCCs, of course, and another ace up its sleeve is its 72 MMbbl of cavern and tank storage a few miles inland at Clovelly, LA. Today, we continue our series on Gulf Coast export facilities with a look at LOOP.

U.S. crude oil exports have averaged a staggering 1.6 MMb/d so far in 2018, up from 1.1 MMb/d in 2017, and the vast majority of these export volumes — 85% in 2017 — have been shipped out of Texas ports, with Louisiana a distant runner-up. The Pelican State has a number of positive attributes for crude exporting, though, including the Louisiana Offshore Oil Port (LOOP), the only port in the Lower 48 that can fully load the 2-MMbbl Very Large Crude Carriers (VLCCs) that many international shippers favor. It also has mammoth crude storage, blending and distribution hubs at Clovelly (near the coast and connected to LOOP) and St. James (up the Mississippi). In addition, St. James is the trading center for benchmark Light Louisiana Sweet (LLS), a desirable blend for refiners. The catch is that almost all of the existing pipelines at Clovelly flow inland — away from LOOP — many of them north to St. James. That means infrastructure development is needed to reverse these flows southbound from St. James before LOOP can really take off as an export center. Today, we consider Louisiana's changing focus toward the crude export market and the future of regional benchmark LLS.