Two stories that appeared in Platts Oilgram News in the last week — both are on a document you can read here – were about developments miles apart, but which are highly related.
On the East Coast, Buckeye Pipeline is looking at moving heavy Canadian crude to its big BORCO terminal in the Bahamas. And once it gets there, it basically can go anywhere. This is significant because Canadian heavy crude, coming out of the oil sands, has mostly been restricted to shipments to the US, or out to the West Coast via the Trans Mountain Pipeline. (That line only has capacity of about 300,000 b/d but shippers want to use it so badly that it recently has accepted only about a third of its nominated barrels.)
It’s also going to be significant because it takes the anti-oil sand fight out of Canada and the US and extends it to other areas where oil from the sands might end up. But that’s a fight for down the road.
Bridget Hunsucker, who has been covering the big changes in the US midstream sector as a result of the shale boom, wrote about the Buckeye plans after listening to the company’s quarterly earnings call on November 1. A few days later, she listened to the earnings call of Plains All American, where it revealed its plans to create a giant rail hub in Bakersfield, California, bringing in Bakken and other Midcontinent crudes.
This creates a whole lot of scenarios. First, the idea of that disconnected California market, almost like Hawaii but attached to the rest of the country, starts to fade. Second, the preferable carbon intensity rating of Bakken crude under the California low carbon fuel standard may make those shipments of crude into California attractive to refiners. Third, the “cheap” crude oil that powered Midcontinent refiners to amazing margins earlier this year may now be available on a less profitable basis to refiners outside of PADD 3.
Bridget, commenting on these developments, noted about the changes.
As the US oil midstream reporter for Platts, I am amazed by all the interesting ways that companies are quickly adapting to the new crude landscape. It seems that every day new projects are announced that are incredibly inventive and resourceful. This can absolutely be said of both Buckeye’s and Plain’s recent plans. When writing these stories I couldn’t help but notice a similarity… both companies are planning to use existing assets to facilitate new market conditions. How smart. New crude production is changing everything, but a handful of midstream companies seem to really be staying ahead of the game. I haven’t been in this market too long, but I came in at the right time… right as crude by rail took off.
The wide Brent/WTI spread of months ago got to parity recently, though surging US production has forced it back out to about $10. But at the same time, as Platts’ Esa Ramasamy noted in this blog entry, Mars and LLS are moving back toward a closer tie with WTI, a movement spurred in part by the types of midstream changes that are continuing in the form of the Buckeye and Plains projects.
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