Viewpoint: Market access divides upper midcon pipelines

West Shore pipeline gasoline prices have fallen below other Chicago-area locations in recent months, reflecting a possible shift in the US midcontinent refined products market to favor lines with access to the eastern US.

The premium at Buckeye Partners' Chicago Complex over West Shore pipeline regular CBOB values — the most liquid gasoline grade in the region — has averaged 1.9¢/USG since the beginning of the year, peaking at 12.25¢/USG in February and averaging 1.4¢/USG since the beginning of July.

This is 58pc above the 2017 average of 1.2¢/USG, and over three times larger than the 0.47¢/USGaverage seen in 2016, when Argus began assessing Buckeye Complex prices.

CBOB on the Wolverine pipeline has also fetched an average premium of 0.5¢/USG over West Shore since 12 April, when Argus began assessing prices on the Wolverine pipeline.

The West Shore pipeline follows the western shore of Lake Michigan and serves areas in the northern portion of the upper midcontinent. It provides access to less lucrative markets than those accessible by the Wolverine pipeline and by way of the Buckeye Complex.

Opportunities in the eastern US, including the Pittsburgh and central Pennsylvania markets, have become increasingly attractive to refiners in the midcontinent as the region's production capacity grew in recent years.

Refiners and midstream companies in Illinois and the Ohio Valley have been keen to access to the region. But their plans have faced regulatory hurdles and drawn the ire of the regions traditional suppliers on the east coast.

The Wolverine pipeline system, which transports product from as far west as Joliet, Illinois, to destinations in Indiana and Michigan, connects to other pipelines that service the Eastern US, including Buckeye Partners' large midcontinent refined products pipeline system and those operated by Energy Transfer Partners' Sunoco Logistics.

Buckeye's 6.8mn bl Chicago Complex provides access to most major refined products pipelines in the upper midcontinent as well as connection with pipelines running from the lower midcontinent and the US Gulf coast.

Discussion with market participants also indicates that premiums in the Wolverine and Buckeye Complex markets have been compounded by refinery issues in the upper midcontinent. Recent shutdowns and upsets include the 9 July shutdown of a gasoline-producing unit at Marathon's Canton, Ohio refinery. ExxonMobil reported issues at its 240,000 b/d Joliet refinery in Channahon, Illinois on 17 June.

Other issues reported over the past month include fluid catalytic cracking (FCC) unit malfunctions at Husky's Lima, Ohio refinery and at BP-Husky's joint-venture refinery in Toledo, Ohio.

This is consistent with dynamics seen in February, when the premium over West Shore product for regular CBOB at the Buckeye Complex reached its widest ever amid turnarounds in the region and averaged 8.2¢/USG..