Over the past few years, rising production in the Canadian oil sands and U.S. shale plays such as the Bakken, Permian and Eagle Ford has given refiners new options for sourcing their crude, causing changes in oil pipeline utilization and prompting the development of new pipelines — or the reversal of existing pipes. A prime example of all this is playing out in Memphis, TN, where a Valero Energy refinery will be shifting from mostly U.S. Gulf Coast-sourced light crude to light crude that will flow in on the new Diamond Pipeline from the Cushing, OK, crude storage hub. Valero’s change in crude sourcing will be yet another blow to the 1.2-MMb/d Capline Pipeline, which for decades has moved crude north from the Gulf Coast to Patoka, IL, and other points along the way, including western Tennessee. Today, we look at the thinking and economics behind Valero’s plan and at the latest news on Capline.
We’ve looked at Capline and Diamond many times before here in the RBN blogosphere. More than five years ago, we noted 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 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%.)
A couple of years later, in Diamonds Are Forever, we discussed the plan by a joint venture of Plains All American and Valero Energy to build the 200-Mb/d Diamond Pipeline (green line) to transport crude from Plains’ Cushing storage terminal to Valero’s 195-Mb/d refinery in Memphis. When Diamond is completed later this year, the crude flows from Cushing into Memphis are expected to largely displace crude that is now transported to the refinery from St. James via Capline and Valero Energy Partners’ Collierville Pipeline (short brown line near center of map), a 52-mile-long, 210-Mb/d pipeline lateral from Capline (at Collierville, MS) to the Memphis refinery. In other words, Diamond’s startup will put another nail in the coffin for a northbound-flowing Capline — a matter we discussed again in Living on the Edge.