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Plains' Proposed Diamond Pipeline to Supply Crude to Valero Refinery

Plains All American Pipeline LP plans to build a pipeline to transport crude oil produced in the Permian Basin, Bakken Shale and the Midcontinent from its terminal in Oklahoma to a Valero Energy Corp. refinery in Memphis, TN.

Houston-based Plains said its proposed Diamond Pipeline would run 440 miles from its Cushing terminal to the Valero Memphis Refinery, which processes sweet crude. The 20-inch diameter pipeline would provide capacity of up to 200,000 b/d of domestic sweet crude. The total cost for the project is estimated at $900 million, and it is expected to be completed in late 2016.

According to Plains, the Diamond Pipeline project is supported by a long-term shipping agreement with Valero, plus a related contract for storage and terminal services at its Cushing terminal. Valero will also hold an option, until January 2016, to become a partner in the Diamond Pipeline and purchase a 50% interest.

The deal will also grant Plains access to Valero's Collierville pipeline, which serves as the primary supply source for crude to the Memphis refinery. According to San Antonio, TX-based Valero, the Collierville pipeline traverses the Mississippi-Tennessee border and has a capacity of 210,000 b/d.

Construction of the Diamond Pipeline "will enhance the refinery's long-term viability for the production of gasoline, diesel and jet fuel for the greater Memphis and eastern Arkansas area and provide economic benefits to the areas along the route," Plains said.

Plains said it expects to have engineering plans finalized, permits and rights-of-way acquisition completed and construction started in late 2015.

P.J. Spaul, spokesman for the Little Rock, AR, district office of the U.S. Army Corps of Engineers, told NGI's Shale Daily that the office has not yet received any formal permit applications for the pipeline.

"We have had a few preliminary discussions, just to tell the company what they have to do, to apply for and to go through the permit process with us," Spaul said Friday. Two federal laws -- the Rivers and Harbors Act, and the Clean Water Act -- grant the Corps regulatory authority for the construction of pipelines that cross navigable waterways, streams and wetlands.

According to reports, Roger Read, an analyst with Wells Fargo Securities LLC, issued a note saying the agreement and construction of the pipeline would benefit Valero by providing a cheaper source of crude oil for the refinery. Valero currently delivers crude by rail to a terminal in St. James, LA. It is then shipped by barge up the Mississippi River to the refinery.

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