Ho-Ho

The reversal of Shell’s Zydeco Pipeline (formerly Ho-Ho) in 2013 was a big deal. It enabled eastbound flows of a wide range of crude streams from the Houston area to the storage and distribution hub at St. James, LA and from there to a dozen nearby refineries. Soon, though, Zydeco (named for the region’s Creole music) was running full and shippers were competing for space, spurring midstream companies to consider further enhancements. New pipeline capacity being developed is planned to come online later this year and in 2017, but—with ever-changing market dynamics—will it all be necessary? In today’s blog, “Take the Long Way Home—Easing Crude Pipeline Constraints to St. James,” Housley Carr begins a series on new pipeline capacity to St. James, and whether it will meet (or exceed) market needs.

The recent end to U.S. crude export prohibitions opens up a number of coastal infrastructure development opportunities. One of the best placed assets is Louisiana’s Offshore Oil Port (LOOP) – the largest U.S. waterborne crude receipt terminal. LOOP could become a Gulf Coast crude blending and trading hub if its infrastructure is upgraded to facilitate exports. Today we look at the existing LOOP operation and future opportunities for exports.

The proposed 400 Mb/d Shell Pipeline Company Westward Ho pipeline from St. James, LA to Nederland, TX was first touted in 2011 and initially expected to be in service by Q3 2015 but is now delayed at least until the end of 2017. The project is designed to replace the Shell Ho-Ho pipeline that used to ship crude from Louisiana to refineries on the Texas Gulf Coast until it was reversed in 2013. Westward Ho has struggled to attract shipper commitments to bring additional crude into the saturated Texas Gulf Coast market. Today we review the project’s rationale.

So far in 2013 around 645 Mb/d of new crude oil pipeline capacity has opened up to ship supplies to the Texas Gulf Coast. Early this month (December) line fill starts on the largest new capacity addition to date – the 700 Mb/d Keystone Gulf Coast Pipeline. The new pipeline runs from Cushing to Port Arthur and will carry mostly Canadian heavy crude. Today we wonder if all that crude will find a home.

The first episode in this series described 4 MMb/d of current and planned expansions to crude transportation capacity into the Texas Gulf Coast region (see Handling The Texas Gulf Coast Crude Flood). Our analysis showed that the new incoming light crude capacity will exceed Texas Gulf Coast demand by somewhere north of 0.5 MMb/d by the end of 2015. In episode two we described how some of these excess crude supplies would move east on the reversed Ho-Ho pipeline (see Gulf Coast Crude West to East Flows). In episode three we looked at how shippers could divert supplies away from Texas Gulf Coast congestion (see Texas Gulf Coast Bypass Options). This time we consider the impact of the Keystone Gulf Coast pipeline.

One of the more confusing features of the Keystone Gulf Coast Pipeline is what to call it – the name seems to change in real time. That is probably due to a desire to disassociate the southern Gulf Coast section of the pipeline from delays in permitting the Canada to US Keystone XL pipeline. Owner and operator TransCanada most recently set up a subsidiary to operate the pipeline called Marketlink LLC and it should now apparently more properly be called the Cushing Marketlink Pipeline so we will go with CMP as an abbreviation.

The 36-inch-diameter CMP runs 485 miles from Cushing, OK, to Nederland, TX (see green line on the map below). The line will have an initial capacity of 700 Mb/d with the option to expand to 830 Mb/d. It is almost ready to commence operations but before that can happen it has to be filled with oil – a process known as “line fill”. We described how line fill works and provided a formula to approximate the volume of oil required back in May 2012 (see A Time for Gas A Time For Crude – Part 2). According to that formula CMP requires 3.5 MMBbl of line fill. Marketlink LLC has said the first pipeline deliveries will be made before the end of 2013. The company is also constructing a 48-mile Houston Lateral pipeline (orange line on the map) that will run from the Liberty pumping station to East Houston and should be online by the end of 2014 with 130 Mb/d capacity.

The initial destination of the CMP is the Sunoco Logistics (part of Energy Transfer Partners) Nederland terminal. We have covered the Nederland terminal in two previous blog posts (see Nederland Crude Wonderland and Nederland Crude Volume Surges). The terminal is located on the Sabine-Neches waterway between Beaumont and Port Arthur, TX and has 22 MMBbl of storage capacity (see map below). The location is in the heart of Beaumont/Port Arthur refining country – home to four large refineries owned by ExxonMobil (Beaumont, 365 Mb/d), Valero (Port Arthur, 310 Mb/d), Total (Port Arthur, 174 Mb/d) and Shell/Saudi Aramco (Motiva 600 Mb/d). The Sabine Neches Waterway connects to the Gulf of Mexico, providing waterborne access to the entire Gulf Coast region. Nederland is about 100 miles East of Houston and 350 miles West of New Orleans.

When over 4 MMb/d of new crude transportation capacity opens up to the Texas Gulf Coast by the end of 2015 shippers are likely to face congestion getting their supplies to refiners in the region. Given the U.S. Department of Commerce ban on exports, some of that crude needs to find a home elsewhere. Pipeline options to get crude supplies to Eastern Gulf refineries are limited to the Ho-Ho reversal project. Today we examine shipper alternatives.

We estimate that over 4 MMb/d of new crude transportation capacity will have opened up to the Texas Gulf Coast by the end of 2015 – to a region with just under 3.7 MMb/d of nameplate refining capacity. With crude exports restricted by Federal law, some of that crude is going to need to find a home – most likely at Eastern Gulf refineries in Louisiana and Mississippi. Today we look at how some of the incoming flood of crude could be redistributed across the Gulf Coast region.

A veritable flood of more than 3 MMb/d of new crude production from the US and Canada will come into the Houston region by 2015 via long awaited new pipeline infrastructure. The most immediate impact will be to back out light sweet crudes from the Gulf Coast region – as early as 2013. Today we assess how the changes will affect light sweet crude pricing.

The Gulf Coast region is the biggest refining destination for the flood of new crude oil being produced domestically and in Canada. Large terminals are needed to receive, store, blend and redistribute this crude to refineries.

The Ho-Ho reversal project coming online in early 2013 provides an important link between the Texas and Louisiana Gulf Coast markets. Ho-Ho should help to distribute 3 MMb/d of crude supplies arriving over the next two years in the Houston area to refineries throughout the region. All this new pipeline capacity is designed to end the Midwest supply glut. Today we discover how the new supply capacity could initially cause more problems than it solves.

Shell is progressing toward early 2013 completion of the Houston, TX to Houma, LA (Ho-Ho) pipeline reversal. Bakken and Canadian Crude via Cushing, Eagle Ford crude from South Texas and Permian Basin crude from West Texas pipeline projects will all be showing up in the Houston area early next year via new or expanded pipeline projects. The Ho-Ho reversal will provide a missing link for these crudes to flow seamlessly to Louisiana Gulf Coast refineries. Today we describe the Ho-Ho project and its significance.