One Way or Another – Gas to Crude Pipeline Conversions

The latest Energy Information Administration (EIA) April 2013 short term energy outlook forecasts US crude oil production to increase from an average of 6.5 MMb/d in 2012 to 7.9 MMb/d in 2014. Surging crude production needs to find routes to market – and often competes for pipeline space with growing Canadian imports. New crude pipelines are taking too long to build. At the same time many natural gas pipelines are flowing far beneath capacity because new gas production nearer to market makes them redundant. Converting these natural gas pipelines to crude oil use where geography allows is a potential win-win. Today we look at gas to crude pipeline conversion economics.

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In the past three years there have been numerous projects floated to convert natural gas pipelines to oil. Here are four of the latest examples:

Pony Express Pipeline (PXP)

To be completed in 3Q 2014 the PXP involves the conversion of a natural gas pipeline running from Guernsey, WY to Ponca City, OK to crude oil in order to expand takeaway capacity from the Rockies. The project will convert 430 miles of natural gas pipeline from Lincoln KS to Guernsey and then build a new pipeline extension from Lincoln to Ponca City and Cushing. Originally a Kinder Morgan project the pipeline is now owned by Tallgrass Energy Partners.

Trunkline (Energy Transfer Partners)

The Federal Energy Regulatory Commission (FERC) approval process for conversion of one of two lines in a 770 mile segment of the Trunkline Gas pipeline to oil service passed the environmental impact test this week. A 50/50 joint venture between Enbridge and Energy Transfer Partners will convert the 30 inch pipeline from carrying natural gas to 420-660 Mb/d of crude oil between Patoka, IL and St. James, LA. Pending completion of FERC approvals the pipeline would enter service in July 2015.

Kinder Morgan Freedom Pipeline Project

Kinder Morgan this week announced that it is conducting an open season to gauge interest in the conversion of one of two lines in a 740 mile segment of its existing El Paso Natural Gas pipeline to crude oil service.  The “Freedom Pipeline” would transport 277 Mb/d of crude oil from the Permian Basin of west Texas to refineries in California (see map below).

Source: Kinder Morgan Open Season Announcement (Click to Enlarge)

TransCanada Energy East Project

TransCanada is holding a an open season from April 15 to June 17, 2013 to obtain firm long-term commitments from interested parties in their Energy East Pipeline Project. The 2700 mile 500-850 Mb/d crude oil pipeline would run from Hardisty, AB to St. John, New Brunswick. The pipeline would transport crude from Western Canada to Eastern Canadian refineries and potentially provide a path for the export of Western Canadian crude to Atlantic Coast markets and Europe (see West Coast Pipe Dreams). The Energy East pipeline is expected to be in service between the end of 2017 and early 2018 pending permits and approvals. The project involves conversion of capacity on the existing TransCanada Mainline gas pipeline that has recently suffered reduced flows as a result of competition from increased US shale gas production in the Northeast (see Gulf Coast Gas We Don’t Need Ya Anymore and Return To Sender).

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