Part of the Plan, Part 2 - St. James Hub Preps to Receive Canadian Crude Via Southbound Capline

It’s been a mantra in the energy industry for a few years now: more Canadian and Lower-48 crude oil needs to move to the Gulf Coast, with its bounty of refineries and export docks. And that’s been happening, thanks to a slew of new and expanded pipelines and new tankage. Similarly, new export capacity has been developed, and a number of refineries in Texas and Louisiana revised their crude slates to take advantage of what looked like an ever-rising supply of North American crude. Yet another piece of the puzzle will slide into place in January 2022, when crude oil — most of it heavy Western Canadian — will start flowing south on the newly reversed, large-bore Capline pipeline from the Patoka hub in Illinois to the impressive collection of terminals in St. James, LA. Today, we continue our series on the market impacts of Capline’s upcoming reversal on St. James, Louisiana refineries and crude exports.

Transporting more and more low-API crude from Western Canada to the Gulf Coast has been a major focus of oil sands and other producers in Alberta and neighboring provinces for many years now. Thanks to the development of a number of new pipelines in the early and mid-2010s — including the Keystone Pipeline from Hardisty, AB, to Cushing, OK, and the Marketlink (blue line in Figure 1) and Seaway (lime green line) pipelines from Cushing to Nederland and Freeport, TX, respectively — a considerable volume of heavy, sour crude makes its way south each day, most of it in the form of dilbit (a very flowable mix of bitumen and diluent; see He Ain’t Heavy, He’s My Diluent). Also, several rail terminals have been developed over the years to allow unit trains carrying heated bitumen or “railbit” (a less flowable variant of dilbit) to transport additional volumes from Western Canada to terminals in Texas and Louisiana. To date, however, the only way to pipe heavy Canadian crude/dilbit to Louisiana has been to send it east from the Texas coast on the Bayou Bridge pipeline (yellow line) from Nederland to St. James. [The Zydeco Pipeline (orange line) from Houston to Louisiana does not carry heavy crude.] But that’s a roundabout and relatively costly pipeline route from Western Canada to Louisiana, and our understanding is that most of the flows on Bayou Bridge (and all the flows on Zydeco) involve lighter grades of oil from U.S. shale basins in Texas, the Midcontinent, and the Rockies.

That brings us to Capline (red line) which, beginning in January 2022, will offer the most direct pipeline access for heavy Canadian crude/dilbit bound for Louisiana. As we said in Part 1, Capline is a 632-mile, 40-inch-diameter pipeline that, for a half-century, transported mostly imported and offshore Gulf of Mexico crude north to refineries in the Midwest, with the Patoka hub serving as a key distribution point at Capline’s northern terminus. By the early 1980s, Capline’s capacity was increased to a staggering 1.2 MMb/d (from its initial 417 Mb/d), and for many years that capacity was highly utilized. But by the early 2010s the Midwest refineries connected to the Patoka hub by pipelines had gained access to the increasing volumes of crude available from Western Canada and the Bakken. As a result, they simply didn’t need Capline’s northbound flows as much as they used to, and volumes on the pipe slowed to less than half and then to less than a third of its capacity. Additional blows to flows on Capline came in 2017, when Plains All American and Valero Energy’s 200-Mb/d Diamond Pipeline (solid purple line) from the Cushing, OK, hub to Valero’s 195-Mb/d Memphis refinery came online (eliminating the refinery’s dependence on Capline), and 2018, when MPLX expanded the capacity of its Ozark Pipeline (hot pink line) and Wood River-to-Patoka Pipeline (light pink line), offering an incremental 130 Mb/d of capacity from the Cushing hub to the Midwest.