Marathon Petroleum will spend the year studying whether a market exists to move Canadian heavy oil to Louisiana.
Previously announced engineering studies on work needed to reverse the 1.2mn b/d Capline pipeline connecting St James, Louisiana, to Patoka, Illinois, will be complete in the first quarter of this year, Marathon Petroleum chief executive Gary Heminger said today.
But the US independent refiner and co-owners BP and Plains All American Pipeline will spend the rest of the year studying Canadian heavy supplies and market demand in the current, lower oil environment, he said. All owners must agree on a reversal.
"That is the big study that is going to take the balance of the year — to understand where you can line up the supply, how that supply will move to markets and how that supply may affect some of the upper (US midcontinent) refineries," Heminger said.
The last point may prove the trickiest for co-owner BP, which last year completed a massive expansion of heavy, sour crude processing capacity at its 410,000 b/d refinery in Whiting, Indiana. The firm no longer operates any refining capacity in the US Gulf coast. Marathon Petroleum operates heavy crude capacity at its 120,000 b/d refinery in Detroit, Michigan, but would also like to see more heavy crude available to its 522,000 b/d refinery in Garyville, Louisiana. A project providing heavy crude greater access to the eastern US Gulf coast could increase competition the feedstock moving through the midcontinent.
US crude flows have effectively flipped as less costly US and Canadian production from the north pushes out imports delivered to the US Gulf coast. Capline would be the latest in a series of reversals and expansions directing crude from the north into the Texas coast. Heavy refineries in Louisiana, including Garyville and ExxonMobil's 500,000 b/d refinery in Baton Rouge, have had a tougher time accessing the new source of heavy crude.
A reversal could increase flows on the underutilized pipeline system, another attraction for midstream operator Plains All American and Marathon Petroleum, which operates its own growing logistics subsidiary.
But owners must also consider whether sufficient supply of heavy crude will be available to take to Louisiana. Oil production will increase by roughly 150,000 b/d in this year as projects completed in 2014 come online, according to the Canadian Association of Petroleum Producers (CAPP). But capital expenditures this year will fall by more than half in the current crude price environment, the association said. The Canadian Association of Oilwell Drilling Contractors expects a 41pc drop in drilling activity this year amid lower crude prices. CAPP expects capital expenditures this year to fall by more than half.
Actual engineering and modification to alter the flow of the pipeline would be straightforward, Heminger said.
"The engineering to reverse this pipeline is not that difficult," Heminger said.
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