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Seaway Terminal Limits to Last Until Pipeline Built in 3Q

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Jan. 31 (Bloomberg) -- The Seaway pipeline, which was reversed last summer to relieve a historic oil glut in the Midwest, will have limitations at its terminus in Texas until a new pipeline lateral is finished in late 2013.

Restrictions at the Jones Creek terminal, which was limited on Jan. 23 to 175,000 barrels a day, will be alleviated when Enterprise finishes a new pipeline lateral to its Echo terminal in Houston, Bill Ordemann, Enterprise Product Partners LP vice president, said on a conference call. The pipeline is operating normally out of Cushing, Oklahoma, Ordemann said.

Enterprise and Enbridge Inc. expanded Seaway to 400,000 barrels a day on Jan. 11 in an effort to help relieve the glut of crude oil stored at Cushing, the delivery point for futures traded on the New York Mercantile Exchange. The U.S. benchmark’s discount to Brent widened as much as 3.7 percent in 50 minutes after the statement on the earnings call.

“When we get the lateral from Jones Creek to Echo finished for Seaway, which I believe will be sometime in the third or early fourth quarter this year, I think we will have the ability to alleviate most of the bottlenecks we’re seeing right now,” Ordemann said.

Storage Glut

Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London, estimated the pipeline can’t run more than 300,000 to 320,000 barrels a day until the Echo connection is made.

“This indicates that the pipeline won’t operate at full capacity until the bottleneck at Jones Creek is cleared,” she said.

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 WTI-Brent discount widened $1.16 to $18.12 a barrel at 2:12 p.m. New York time.

Seaway has reached rates of 380,000 barrels a day since the expansion, Ordemann said. He declined to identify current rates.

“Seaway as we look at it today is operating as per design on injections at Cushing,” he said.

Jones Creek

Shippers can take oil off Seaway at a terminal in Katy, Texas, and put it on the Enterprise-operated Rancho pipeline into Houston-area refineries, Rick Rainey, a spokesman for Houston-based Enterprise, said Jan. 25. There is enough capacity on Rancho to make up for Jones Creek limitations.

Jones Creek’s limitations came about because of “unforeseen constraints in outbound takeaway,” Enterprise said in a bulletin to shippers. Oil at Jones Creek can go to Phillips 66’s Sweeny refinery, which is undergoing maintenance right now, or be loaded onto an Energy Department-owned pipeline to Texas City refineries.

The reduced delivery rates at Jones Creek were a result of electrical power issues at the terminal, the Energy Department said in an e-mailed statement Jan. 28.

To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Mike Lee in Dallas at mlee326@bloomberg.net

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