Memphis

Over the past few years, rising production in the Canadian oil sands and U.S. shale plays such as the Bakken, Permian and Eagle Ford has given refiners new options for sourcing their crude, causing changes in oil pipeline utilization and prompting the development of new pipelines — or the reversal of existing pipes. A prime example of all this is playing out in Memphis, TN, where a Valero Energy refinery will be shifting from mostly U.S. Gulf Coast-sourced light crude to light crude that will flow in on the new Diamond Pipeline from the Cushing, OK, crude storage hub. Valero’s change in crude sourcing will be yet another blow to the 1.2-MMb/d Capline Pipeline, which for decades has moved crude north from the Gulf Coast to Patoka, IL, and other points along the way, including western Tennessee. Today, we look at the thinking and economics behind Valero’s plan and at the latest news on Capline.

Two weeks ago (August 21, 2014) Plains All American announced their proposed “Diamond” crude pipeline project from Cushing, OK to Memphis, TN that will feed the Valero Memphis refinery starting in late 2016. The new pipeline will provide more direct access from Cushing to supplies of the light sweet crude this refinery processes that are being produced these days in the Williston, Denver Julesburg, Permian and Anadarko basins. Presumably the Diamond pipeline will replace existing arrangements where crude is shipped up the Capline pipeline to Memphis. That development looks to be another nail in the coffin for the northbound Capline crude trunk route between St James and Patoka, IL. Today we discuss the proposal and its consequences for Capline.