Cochin

Enbridge is taking a serious look at converting its Southern Lights pipeline, which currently transports  diluent northwest from Illinois to Alberta, to a 150-Mb/d crude oil pipe that would flow southeast. The potential reversal of Southern Lights is made possible by the facts that Western Canadian production of natural gasoline and condensate — two leading diluents — has been rising fast, and that demand for piped-in diluent from the Lower 48 is on the wane. Alberta producers could sure use more crude pipeline capacity out of the region — and getting crude down to the U.S. Midwest would give them good access to a variety of markets. With Western Canadian diluent production increasing fast, maybe Kinder Morgan’s Cochin Pipeline, another diluent carrier, could also be flipped to crude service later on. Today, we consider how Southern Lights’ conversion/reversal might help.

Production of lease condensate at the wellhead and plant condensate from processing natural gas liquids (NGLs) has increased rapidly in the Ohio Utica over the past two years. Timely investment by local refiner Marathon and infrastructure developments to ship condensate to Gulf Coast refiners have proved the primary market for Utica condensate so far. The proximity of the region to diluent pipelines to Canada has also prompted infrastructure projects. Today we describe projects to deliver condensate to Alberta.

Since we began this series on diluent supplies to Canada (used to blend with heavy oil to facilitate pipeline shipment), questions about diluent supply have been overshadowed by the bigger concern with falling crude prices. Right now, oil sands producers are probably more concerned with understanding the economics of their expansion projects and whether to go ahead with new oil sands development programs than with securing diluent supplies. Nevertheless, falling diluent costs in Edmonton have provided some relief to existing producers. Today we look at how improving diluent supplies and better prices for Canadian crudes have reduced diluent costs.

According to the U.S. Department of Agriculture, this year’s corn crop was 94 percent harvested by November 24, 2014. Unlike the 2013 harvest season,  related crop drying activity by farmers to extract moisture from harvested corn has not led to shortages of propane- the main fuel used to power dryers. A wetter than usual crop last year started a Midwest propane shortage that morphed into a crisis by January when Polar Vortex winter weather spiked demand again and pushed prices above $4/Gal. This year the Midwest propane market has to cope with the loss of a major transport artery – the Cochin pipeline that used to bring Canadian propane supplies to the Midwest but has now been reversed to carry U.S. diluent to Canada. Today we examine  new Midwest propane delivery infrastructure.

Canadian production of diluent range light hydrocarbon materials such as natural gasoline and condensate are not currently meeting demand from the oil sands region. Diluent is used to reduce the viscosity of heavy Canadian crude so that it can flow to market in pipelines. Diluent supplies required to supplement Canada’s domestic output are nearly all imported from the U.S. via two pipelines that originate in the Midwest. Those pipelines are mostly supplied with diluent sourced from the Gulf Coast. Today we look at how imported diluent gets to Western Canada.

Two years ago, the Double Eagle condensate pipeline from the western oil and rich gas windows of the South Texas Eagle Ford basin simply provided access to Corpus Christi. By early 2015, the Double Eagle will be linked to the Kinder Morgan crude and condensate pipeline to Houston. Together the two systems will offer shippers access to Corpus Christi, Houston, condensate splitter capacity and diluent pipelines to western Canada. Today we describe the growth of this multi-destination delivery system.

Output of naphtha range material such as plant condensates and natural gasoline in the Ohio section of the Utica shale is increasing rapidly as new processing and fractionation capacity in the region comes online. Output of field condensate from the wellhead is also expected to take off in 2014. These light hydrocarbons will be delivered to market by a combination of pipeline, rail and barge infrastructure. Today we look at pipeline infrastructure plans to deliver condensates and natural gasoline to Canada as diluent.

The northern corn-belt states are winding down from a very wet bumper crop of corn which has required a lot of grain drying, fired by propane.  That has translated into a shortage of propane supplies – so much so that seven governors recently issued emergency orders to expedite propane deliveries to their states.  Now, with about three weeks left before the official onset of winter (and it feels like winter already), 2013 Midwestern propane problems should be behind us.  But what about next year?  In 2014, Cochin pipeline – one of the most significant traditional sources of propane for the region goes away.  Kinder Morgan (current owner and operator of Cochin) is reversing the system and turning it into a diluent pipeline.  Volumes of propane previously delivered by Cochin must come from somewhere else.  Today we’ll continue our series looking at upper Midwest propane and how the region is likely to adjust in the post-Cochin market.

Corn drying in the Midwest is finally wrapping up, but farmers and grain elevators are still short of propane supplies even after emergency orders were imposed by several Midwestern governors. The shortage has contributed to a spike in propane prices and the Conway, KS market jumped above Mont Belvieu last week for the first time since February 2011.  But, there is more to the story.   The upper Midwest is enjoying the largest bumper crop of corn in the record books, and due to recent weather it is “wet” corn needing more drying, thus more propane.  With the U.S. “bumper crop” of propane from processing shale gas flooding the market, you might wonder why there is a problem.  Clearly the answer is logistics – having the barrels at the right place at the right time.  And that’s the reason for more concern when we get to next year.  Because one of the primary propane supply conduits to the Midwest – Cochin pipeline - goes away in early 2014.  Today we start a series to look at what’s going on with Midwest propane and how that market is likely to change when Cochin is reversed and turned into a diluent pipeline.