* Startup marks historic shift in U.S. oil flows
* Will help reduce U.S. Midwestern glut of crude oil
* Expected to ease discount of U.S. oil to world price
* Volumes to ramp quickly to 150,000 barrels
By Bruce Nichols
HOUSTON, May 19 (Reuters) – The Seaway pipeline began
pumping crude from Cushing, Oklahoma, oil tanks to the heart of
the U.S. refining industry in Houston on Saturday, marking a
historic shift in the way oil flows across the United States.
The first barrels went into the line about noon CDT (1700
GMT) Saturday and volumes were expected to increase within days
to 150,000 barrels per day (bpd), spokesman Rick Rainey of
operating partner Enterprise Products said by email.
Enbridge Inc is a 50 percent partner in the project.
The startup is the first direct link from Cushing to the
Gulf Coast, the biggest U.S. refining center. Cushing is the
delivery point for the U.S. benchmark oil futures contract,
which represents a blend of crudes from the Midwestern states.
It has been landlocked in Cushing and steeply discounted to
world prices as a result.
The first oil will take 12 days to reach Houston, 550 miles
(885 km) south of Cushing, but market anticipation of the event
already has lifted inland crude prices in North America,
although analysts disagree how much and how fast prices will
change with reversal of Seaway.
The spread between U.S. benchmark West Texas
Intermediate and global benchmark Brent, similar
crudes historically priced at near parity, narrowed to $15 from
almost $19 Wednesday. It was as much as $28 late last year,
costing U.S. and Canadian oil producers billions but boosting
profits for Midwestern U.S. refiners.
The 669-mile (1,077-km) Seaway system, which goes to
Freeport and Houston, opened in 1995 and historically flowed
from the Gulf Coast to Cushing. But a surge in Canadian oil
sands output and U.S. shale oil production rendered
south-to-north flow unnecessary.
Interest in reversing Seaway to flow north-to-south
intensified in the past 18 months as Cushing inventories surged
and NYMEX WTI fell to unprecedented discounts. Cushing stocks
hit a record 45 million barrels last week.
Last fall, ConocoPhillips sold its 50 percent
interest in the line to Enbridge, which then agreed with
co-owner Enterprise to reverse Seaway. It has taken several
months of work on pump stations to bring the plan to reality.
A new pump station is under construction at the Cushing end
to allow flows to reach 400,000 bpd in early 2013. Ultimately,
Enbridge and Enterprise plan to more than double the line’s
capacity to 850,000 bpd.
That and other planned pipeline projects, along with rail
and barge transportation of crude, will be required to ease the
Midwestern oil oversupply more fully and permanently, most
analysts have said.
“One theory is that once barrels start moving out of Cushing
and the pipeline expands to 300,000 or 400,000 bpd by early 2013
the spread will narrow. We’re seeing some of that,” said Tom
Bentz, director of BNP Paribas Commodity Futures in New York.
“The other theory is that even though crude is moving out,
there is still more coming into Cushing due to increased
Canadian and U.S production. Also North Sea (Brent) production
problems will keep the spread very wide,” Bentz said.
Analysts had mixed opinions whether the first crude down
Seaway would be light sweet or heavy sour or a mix. The type of
oil makes a difference to refiners as well as pipeliners. Much
of the stored oil at Cushing is now Canadian heavy sour.
Enterprise did not disclose the initial mix of oil grades.
Light oil is easier to handle at pipeline startup than
heavy, making light the likely choice, said Abudi Zein of
Genscape, an industry data monitor.
“The biggest bang for the buck would be to displace foreign
light sweet with much cheaper domestic light sweet,” said Rusty
Braziel of RB Energy consultants in Houston.
Mark Routt of KBC Advanced Technologies in Houston had a
different opinion. Heavy crude costs more to pipeline than light
crude but Gulf Coast refiners are geared for cheaper heavy, he
said.
“My guess is that slightly more heavy than light will be
flowing,” Routt said.
