Heavy crude oil

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.

In just a few months, heavy crude from Western Canada will start flowing south on the Capline pipeline from the Patoka, IL, hub to the one at St. James, LA. While the initial volumes will be modest, Capline’s long-awaited reversal will provide Louisiana refineries and export terminals with easier, lower-cost access to oil sands and other Alberta production. Flipping the pipeline’s direction of flow also means more changes for the St. James storage and distribution hub — one of the U.S.’s largest — which has already seen more than its share of evolution during the Shale Era. Today, we continue our Capline/St. James blog series with a look at St. James’s terminals and pipelines, the Louisiana refineries they supply, and the changes coming with the Capline reversal.

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.

According to Energy Information Administration data, the 26 refineries in the Midwest/PADD 2 region processed an average 3.6 MMb/d of crude oil in 2016—up 300 Mb/d from the 3.3 MMb/d refined in 2010. Over the same six-year period, production of light oil production in the region shot up by over 1 MMb/d, mostly from the prolific Bakken formation in North Dakota. Yet Midwest refiners did little to take advantage of the sudden abundance of “local” production, increasing instead their appetite for imported heavy crude from Western Canada by nearly 1 MMb/d—from 800 Mb/d in 2010 to 1.8 MMb/d in 2016. Today we explore the trend for PADD 2 refineries to run more heavy crude even as shale output surged in their backyard.