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Seaway Pipe ‘Running as Expected’ Despite Terminal Limits

Jan. 25 (Bloomberg) -- The Seaway pipeline that was reversed last year to relieve a historic glut of oil in the central U.S. is “running as expected” despite restrictions on deliveries at the pipe’s final terminal in Jones Creek, Texas, the operator said today.

Shippers can take enough oil off the line at a Seaway terminal in Katy, Texas, to “make up the difference,” said Rick Rainey, a Houston-based spokesman for Enterprise Product Partners LP. Rainey declined to specify the rate at which it’s currently running.

The pipeline’s capacity was expanded to 400,000 barrels a day on Jan. 11 in an effort to help relieve the glut of crude oil stored at Cushing, Oklahoma, the delivery point for futures traded on the New York Mercantile Exchange. Jones Creek can accept only 175,000 barrels a day, Enterprise said in a bulletin to shippers on Jan. 23.

“Rates are flowing as we would have expected with the additional Katy receipt point that has allowed volumes to continue normally,” Rainey said. “Flows on the pipeline have not been restricted.”

There is capacity on Enterprise’s Rancho pipeline for Seaway volumes taken off at Katy to be delivered into Houston-area refineries, Rainey said.

Enterprise and Enbridge Inc. each own 50 percent of Seaway. Enterprise operates the pipeline.

Conflicting Information

A reduction in flows along the Seaway pipeline can weaken the price of West Texas Intermediate relative to North Sea Brent because it limits the amount of oil that can leave Cushing, America’s biggest storage hub. A glut at Cushing pushed WTI to an average discount of $17.47 a barrel below Brent last year compared with a premium of about 95 cents in the 10 years through 2010. The resumption of higher flow rates could cause the spread to narrow.

“We need to find out what the rate is,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “There’s clearly been a lot of different conflicting information out there, if you will.”

Lipow said the problem has been resolved if rates are around the 300,000 barrels a day that the line reached before the constraint.

“If they’re sitting there at 175,000 or 200,000, I would tell you the problem is still existing,” Lipow said.

WTI futures rose 38 cents in 20 minutes after the news was released. Futures were down 7 cents to settle at $95.88 a barrel. The WTI-Brent spread widened 7 cents to $17.40 a barrel.

Unforeseen Constraints

Enterprise said it limited deliveries at Jones Creek because it reached its storage capacity due to “unforeseen constraints in outbound takeaway.”

Jones Creek can send oil to Phillips 66’s Sweeny refinery, or to Texas City refineries via a pipeline owned by the U.S. Energy Department and operated by Exxon Mobil Corp., Rainey said.

The 247,000-barrel-a-day Sweeny refinery is undergoing planned maintenance, Rich Johnson, a Houston-based company spokesman said. The plant planned to shut a crude unit, coker and sulfur recovery unit for 35 days of work starting Jan. 7, two people familiar with the work said Sept. 6.

The Energy Department in 1999 agreed to let Exxon operate two pipelines connected to the U.S. Strategic Petroleum Reserve in Bryan Mound, Texas. The Bryan Mound-to-Texas City pipeline is a 40-inch diameter, 46-mile long pipeline, while the Bryan Mound-to-Jones Creek pipeline is a 30-inch diameter, 4-mile long pipeline, according to an Energy Department news release.

Record Inventories

Inventories at Cushing climbed to a record 51.9 million barrels on Jan. 11, according to the U.S. Energy Information Administration, the statistical arm of the Energy Department.

Flows through Seaway will remain constrained until the completion of a connection to Enterprise’s storage terminal in southeast Houston, known as ECHO, according to Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland.

“Increased capacity on the Seaway pipeline has transformed the Cushing glut into the Freeport glut,” Jakob said, referring to the city in Texas where the link terminates.

Barclays Plc forecast that the WTI-Brent spread will shrink to an average of $14 a barrel this quarter. While this week’s decrease in flows doesn’t alter that prediction, the bank said the price gap is more likely to exceed its estimate than undershoot it.

“While that problem may not constrict Seaway’s flow very significantly beyond the current month, the incident does illustrate the potential sensitivity of WTI to pipeline and refinery glitches,” Paul Horsnell, Barclays’ London-based head of commodities research, said in a report.

To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Eliot Caroom in New York at ecaroom@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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