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In Response to Oil Shale Growth, Shell Considers Pipe Reversal

With oil production from domestic shale plays growing, a Royal Dutch Shell plc subsidiary is considering a plan to reverse flows on its Houma-to-Houston (Ho-Ho) system, which now runs from Houma, LA, to oil processing facilities east of Houston. Reversing the 22-inch diameter pipeline would enable more than 300,000 b/d of crude to be distributed across the Gulf Coast region, the company said.

Some customers have requested service to carry crude oil products from shale plays to southern markets, according to Shell Pipeline Co. LP.

"Shell Pipeline's Ho-Ho reversal would provide pipeline access to additional crudes across the 300 miles of the U.S. Gulf of Mexico refining complex," the oil major stated. "Those crudes include the domestic crude oil production increases in Texas and the Midcontinent including the Barnett [and] Eagle Ford, [and the] Bakken Shale...as well as the growing crude supplies in the Cushing, OK, area."

In addition to considering a reversal of the Ho-Ho system, Shell said it is determining the level of interest in a new oil pipeline from Louisiana to the Beaumont/Port Arthur, TX, area east of Houston.

A lack of oil pipelines in the shale plays has built the businesses of barges, trucking companies and railroads, which are carrying crude products that are landlocked, noted KBC Advanced Technologies analyst Mark Routt. New pipeline competition would affect these services, he said, but "there's plenty to go around."

Morningstar analyst Jason Stevens said in a note reversing Ho-Ho may not alleviate an oil glut that is accumulating in the Cushing storage hub but it would help onshore oil producers realize more profits in the Louisiana market. "A pipeline makes more sense than shipping by barge any day," he wrote.

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