New pipelines to increase crude oil takeaway capacity from major producing areas like the Permian and the Bakken to oil storage and distribution hubs like Houston, TX and Cushing, OK seem to garner most of the media’s attention. Just outside the spotlight’s glare, though –– and even during the ongoing slump in oil prices –– midstream companies are building several “demand-pull” pipelines to move crude to refineries more efficiently, and to give refineries easier, cheaper access to new, desirable supplies. Today, we begin a look at these new pipeline connections, their rationales, and their effects on other pipelines, barge deliveries and crude-by-rail.
Say “Keystone XL,” “Energy East” or, more recently, “Dakota Access” and you’ll grab headlines and eyeballs. But say “Diamond,” “Caddo” or “Maurepas” and you’ll probably get blank stares from folks outside the crude market. This latter group of hub-to-refinery pipelines (and others like them) are definitely second-tier (if that) in the public’s mind, and for good reason: they are generally shorter and smaller in capacity, and they are designed to move oil the last miles to where it is refined into gasoline, diesel and other petroleum products. Still, these demand-pull pipelines, whose development is typically instigated by refiners looking for an economic edge and/or better access to certain types of crude, punch above their weight, and are important elements in midstreamers’ pipeline portfolios. In this blog series, we’ll consider the tranche of hub-to-refinery pipeline projects now being built –– why they are advancing now, what benefits they will provide their refinery sponsors, and how their development is likely to affect other infrastructure (pipelines, barge and rail offloading facilities) already in place to deliver crude in the refineries’ neighborhoods. A few things are important to consider up-front. One is that U.S. refineries –– and most of the crude oil delivery assets that supply them –– were built years (in many cases decades) before the words “Shale Revolution” were first uttered. (For instance, the first units in Valero Energy’s Memphis refinery –– current photo below –– were built in 1941. Williams sold the Memphis refinery to Premcor in 2003; Valero acquired it in 2005.)
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