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Gray Oak Pipeline, Corpus Terminal to Move More Permian Crude to Texas Coast

Two big Permian Basin crude oil takeaway solutions were launched on Tuesday, with a pipeline in the works to carry up to 1 million b/d from West Texas to the Gulf Coast, and a companion terminal.

Phillips 66 Partners announced construction is a go for Gray Oak Pipeline LLC following an initial open season. Gray Oak, set to be in service by late 2019, would transport supply from the West Texas counties of Reeves, Loving, Winkler and Crane to two coastal locations: near a new terminal in Corpus Christi in South Texas, as well as Sweeney/Freeport destinations south of Houston.

Gray Oak also received enough binding commitments through precedent agreements to launch a second binding open season on Thursday (April 26), and “the ultimate scope and capacity of the pipeline will depend on the outcome of the second open season.”

Depending on the second open season results, Gray Oak initially would transport up to 700,000 b/d-plus to downstream markets. “Assuming the pipeline is fully subscribed, its capacity could ultimately be expanded to approximately 1 million b/d of long-haul takeaway,” the partnership said.

The pipeline is owned through a joint venture that is 75% held by Phillips 66 Partners and 25% by Andeavor. Enbridge Inc. has an option to acquire up to one-third interest, which if exercised, would shrink Phillips 66 Partners’ stake to 42.25%.

Near Corpus Christi in Ingleside, the pipeline would connect to the South Texas Gateway Terminal, a new deepwater, open access marine terminal that would be built and operated by Buckeye Partners LP. Buckeye would control 50% interest, with Phillips 66 Partners and Andeavor each holding a one-quarter stake.

Initial storage capacity for the terminal is 3.4 million bbl, which is expected to start up operations by the end of 2019, in line with startup of the pipeline.

As designed, the terminal would be sited on a 212-acre waterfront parcel at the mouth of Corpus Christi Bay. The facility would serve as the primary outlet for crude oil and condensate volumes from Gray Oak and offer 3.4 million bbl of crude oil storage capacity. It also is to have two deepwater vessel docks capable of berthing very large crude carrier, i.e. VLCC, petroleum tankers as part of the initial scope of construction.

The terminal, according to Buckeye, ultimately could be expanded to include more than 10 million bbl of storage capacity and multiple docks, as well as other inbound pipeline connections.

“The South Texas Gateway Terminal will serve as a premier open-access deepwater marine terminal in the Port of Corpus Christi,” said Buckeye’s Khalid Muslih, president of the Global Marine Terminals business unit. “The terminal will provide customers with logistics solutions that connect the region’s rapidly growing crude oil production with advantaged access to global markets…

“This project expands our presence in the important Corpus Christi market, which we believe offers strong competitive advantages for waterborne shipments of crude oil and other petroleum products from the fast growing Permian and Eagle Ford shale plays.”

The Corpus terminal joins an array of projects underway in South Texas, which has become a go-to destination that would extend the massive oil and gas infrastructure about four hours north in the Houston area.

Assuming the Permian-to-Corpus pipeline is upsized, Gray Oak would combine with two other crude oil takeaway projects underway from West Texas by Cactus II Pipeline and Epic Y Grade Pipeline LP to provide egress for 5.1 million b/d of Permian production through the end of 2020, according to Tudor, Pickering, Holt & Co.

A Plains All American Pipeline LP subsidiary in January said it would construct Cactus II to add 585,000 b/d of takeaway capacity from the Permian to South Texas. The Epic Crude Oil Pipeline already underway, would carry 440,000 b/d to Corpus. Epic also has a natural gas liquids pipeline project in the works that is running parallel to the oil line.

A dizzying lineup of other oil and gas related endeavors also are progressing. In December, global crude oil trader Vitol Inc. and a Hilcorp. Energy Co. affiliate said they were finalizing plans to develop a state-of-the-art export terminal near Corpus that also would move Permian basin volumes to overseas markets. The proposed Harvest Pipeline Co. plans to lease a 22-acre tract from the Port of Corpus Christi.

ExxonMobil Corp. and Saudi Basic Industries Corp., aka SABIC, also have agreed to develop a world-class ethane steam cracker near Corpus, a facility that as planned would be the largest in the world. If the partners green light the final investment decision, the project would be able to produce 1.8 million metric tons/year of ethylene.

In addition, Cheniere Energy Inc. is readying another liquefied natural gas export project for the Corpus region.

“Recently announced improvements to our existing flagship Buckeye Texas Partners terminal, which sits along the ship channel in the Port of Corpus Christi, have expanded its leading marine terminalling capabilities,” Muslih said. “This combined marine terminal presence in Corpus Christi will provide our customers with advantaged last mile solutions, including unmatched connectivity to two recently announced Permian Basin pipeline expansions. We believe that these assets represent a competitive advantage for Buckeye and position us at the forefront of the fast-growing U.S. crude oil export movement.”

For information about the second open season for Gray Oak, contact Corey Leonard at corey.leonard@p66.com.

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