Shale Daily / NGI All News Access

Portion of Trunkline Could Be Bakken Oil Bridge to Gulf

Enbridge Inc. and Energy Transfer are planning to develop a pipeline to carry crude oil from Western Canada and the Bakken Shale, by way of the Patoka, IL, hub to the eastern Gulf Coast in a project that would convert portions of the Trunkline Gas Co. LLC natural gas system to oil service.

Trunkline is a subsidiary of Energy Transfer Partners LP and Energy Transfer Equity LP. The project is subject to approval by the Federal Energy Regulatory Commission of Trunkline's July request to abandon certain segments of pipeline from gas transmission service (see Daily GPI, Aug. 30, 2012).

The converted 30-inch diameter crude pipeline is expected to be in service by 2015 and have capacity of 420,000-660,000 b/d depending on crude slate and results of an upcoming open season. The Trunkline conversion would create the first pipeline transportation option to carry crude oil to the eastern Gulf Coast from the Midwest.

The eastern Gulf Coast market is highly attractive for Canadian and Bakken crude, but it is not currently accessible by pipeline, the companies said. "This project will be another significant step toward our goal of optimizing the Energy Transfer asset base, while helping solve the critical logistics bottlenecks in North America by connecting enormous reserves of oil to the most attractive markets in the U.S., near St. James, LA," said Energy Transfer Partners CEO Mackie McCrea.

During an earnings conference call last week, Enbridge CEO Al Monaco addressed the potential for a glut of light crude in the Gulf Coast market and said that by next year or 2015, some light barrels likely would be displaced. That's not a threat to the company's project with Energy Transfer, though, as it would carry mostly heavy barrels. "...[R]emember that the refinery area in the Gulf coast is configured very nicely for heavy crude, and of course, that market is screaming for heavy and will continue to do so in the future, particularly given the decline in Mexican and Venezuelan crude."

Enbridge's Stephen Wuori, president of liquids pipelines and major projects, added that in the St. James market "there's a tremendous demand for Bakken crude. There's nearly 400,000 b/d of Bakken crude moving by rail and maybe some by barge or boat." He added that U.S. and Canadian crudes would be backing out imported crudes in the Gulf of Mexico as capacity to get them there expands.

Enbridge and Energy Transfer would each own 50% of the joint venture. Enbridge's participation is subject to a minimum level of commitments being obtained in the open season, and on completion of due diligence.

Crude oil can reach the Patoka hub from both western Canada production and from the Bakken Shale in North Dakota through a variety of existing pipelines as well as through Enbridge's Southern Access Extension pipeline, which is under development, the companies said.

The Southern Access Extension will be the fourth pipeline moving crude into Patoka and would support about 250,000 b/d, Monaco said. "Above that 250,000 a day, we will require some additional upstream capacity [for the eastern Gulf-focused project]," he said. "We are currently in discussions with shippers on further capacity additions...[A]t this point, it's probably premature to talk about what that might look like." Wuori added that Southern Access could move both light and heavy crude.

"...[T]here's quite a variety of feeds available for different crudes into Patoka to feed this joint venture [pipeline project]," Wuori said. "But clearly, there is a strong heavy [crude] demand market in the eastern Gulf Coast, some very large refineries with coking capability, and we'll be looking to piece that together. But one of those points will be what is the final size and capacity Southern Access Extension when we finally order the pipe."

Wuori later added that the project with Energy Transfer is intended to take what currently is a rail and water transport market for crude and make it a pipeline market. "There's very little crude that can move by pipe into that market," he said. "It ought to be a pipeline market; it will be a pipeline market, just like the western Gulf Coast."

The Enbridge-Energy Transfer project would span more than 700 miles, including a new lateral from central Louisiana, near the town of Boyce, to the refining market and the crude oil hub at St. James, LA. The St. James hub would provide access to refineries in the eastern Gulf Coast, as well as dock access for water-borne shipments.

"Connecting the Patoka hub to the St. James hub is an important component of our broader plans to open up access to the eastern Gulf Coast crude oil market and responds to significant interest from both producers and refineries," said Monaco. "Together with our western Gulf Coast Access program, which includes the expanded Seaway Pipeline, this new project would provide western Canadian and Bakken producers with access to the largest refining center in the world with approximately 9 million b/d of crude oil processing capacity. The Gulf Coast market is ideally suited for both heavy and light crude oil.

"Over the last two years, we have committed $15 billion of new investments that will open new markets and help to address the significant price disparities facing western Canadian and Bakken producers, and to meet the demand of North American refiners. Across our three major market access programs currently under way, we're using existing infrastructure and rights-of-way to the greatest extent possible."

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