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

The stars may finally be aligning for two related crude oil infrastructure projects that, if undertaken, would provide an important new pathway to overseas markets for Bakken, western Canadian and other North American crude. The first would involve reversing the Capline Pipeline, which was built to transport crude north from the U.S. Gulf Coast to Midwest refiners; the second would make modest physical changes to the Louisiana Offshore Oil Port — better known as LOOP — to allow the crude import facility off the Bayou State coast to load crude onto ships, including Very Large Crude Carriers (VLCCs). Today we look at the new infrastructure and market forces that may finally spur Capline’s reversal and lead imports-focused LOOP to enable exports.

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The Shale Revolution that started in earnest about 10 years ago upended a lot of old assumptions and expectations. For decades, it was a given that crude oil would flow north on pipelines from the Gulf Coast to Midwest refineries — after all, the Gulf Coast had long been the traditional center not only of oil production but of crude imports. And speaking of imports, it had been a widely held expectation since about 1970 — the year Aerosmith (the band behind today’s title song) was formed! — that U.S. oil production was on the decline and that American refineries would be importing an ever-increasing share of their oil needs.

Since horizontal drilling and hydraulic fracturing got a real foothold a few years ago, however, we’ve seen (and blogged extensively about) the many changes brought about by the Shale Revolution. Chief among these were the rebound of domestic production and the need to replumb the U.S.’s oil (and natural gas) pipeline networks and reconfigure many of its ports to deal with changing flow patterns. Some of this happened fast, and some didn’t. We noted more than five years ago in the opening line of Draggin’ the Capline that “Crude oil wants to flow south to the U.S. Gulf” and that the utilization of the 1.2-MMb/d Capline Pipeline (yellow line in Figure 1) from the St. James, LA crude oil hub to the Patoka, IL hub (which is connected to more than 2 MMb/d of Midwest refining capacity) had fallen to only 14%. This decline was largely because Midwest refineries had gained access to the increasing volume of crude available from western Canada and the Bakken. This low rate of Capline utilization raised questions about whether the pipeline’s flow should be reversed to help move Bakken and western Canadian crude south. (Capline is co-owned by Plains All American, with a ~54% stake; Marathon Petroleum, with ~33%; and BP, with ~13%.)

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