Part of the Plan, Part 4 - Who'll Be Buying the Heavy Sour Canadian Crude Moving South on Capline?

For some time now, a handful of refineries in southeastern Louisiana, Mississippi, and Alabama have been able to receive steeply discounted, heavy sour crude from Western Canada by rail or barge — or, in rare cases, by pipeline from Cushing to Nederland, TX, to the St. James, LA, hub. Starting in a few months, though, this same crude also will be able to flow by pipe directly from Patoka, IL, to St. James on the soon-to-be-reversed Capline pipeline. Initially, the southbound volumes on Capline will be modest, but over time they could increase to several hundred thousand barrels a day. Will those barrels be loaded onto supertankers and shipped overseas, or will they be headed for refineries in Louisiana and its eastern neighbors? In today’s blog, we try to answer those questions.

We admit we’ve been a little obsessed about the impending Capline reversal — it’s not every day that one of the largest-diameter crude oil pipelines in the world changes its directional flow. We first mentioned the possibility of turning around the 632-mile, 40-inch-diameter pipeline in one of our earliest blogs, posted nine-and-a-half years ago, and Capline has been a semi-regular blog topic ever since. Today, we wrap up a four-part series on what’s involved in the reversal and what southbound flows on Capline will mean for Western Canadian producers, the St. James hub, exporters, and refiners.

In Part 1, we said that line-filling on Capline will begin this fall and the pipeline will start flowing south from Patoka in January 2022, providing Western Canadian producers with new pipeline access to Gulf Coast markets. We also noted that while Capline’s co-owners — Plains All American (with a ~54% ownership interest), Marathon Petroleum Corp. (MPC; ~33%) and BP (~13%) — had also expected the southbound Capline to receive light, U.S.-sourced crude via a planned extension of Plains and Valero Energy’s Diamond Pipeline, that plan has since been scrapped. In Part 2, we discussed the eight oil terminals at the St. James hub, most of which have docks for receiving/unloading (and loading/sending out) crude on barges, small tankers, and, in some cases, Aframax vessels (500-725 Mbbl). The hub also has crude-by-rail facilities for receiving Western Canadian crude: the NuStar Energy terminal at St. James can receive and unload ~200 Mb/d from incoming trains, while the 12.5-MMbbl Plains terminal can handle ~140 Mb/d. Part 3 looked at the other pipelines that flow into St. James, as well as pipelines that flow out of the hub to area refineries. We noted then that only small volumes of heavy sour crude can flow into Louisiana on the Bayou Bridge pipeline, which runs from Nederland — the terminus of the Marketlink pipeline from Cushing, OK — to St. James.