Viewpoint: Reversed Capline supports WCS Houston

A reversed Capline pipeline is supportive of Canadian crude prices at the Texas Gulf coast and in Cushing, Oklahoma, as other markets will now compete with more direct pipeline buyers in Louisiana.

Capline started interim service from Patoka, Illinois, to St James, Louisiana,on 18 December, with full operations of an initial 102,000 b/d starting 1 January. The pipeline had previously been carrying up to 1.2mn bl of mostly crude imports northward to Chicago area refineries. The line is owned by Marathon Petroleum, Plains All American and BP.

Preparations ahead of the line reversal helped to pull Cushing crude inventories down as oil was diverted to fulfill linefill requirements of just over 5mn bl, which started on 25 October. Cushing crude storage levels fell to 26.38mn bl in early November, the lowest in three years.

With Enbridge's 760,000 b/d Line 3 replacement project from Alberta to Wisconsin, additional volumes have been able to make their way to the US Gulf coast as part of its 370,000 b/d capacity expansion which went into service 1 October. This helped to push the Western Canadian Select (WCS) Houston's discount to WTI Houston to its widest in over five years at about $9.50/bl for the December 2021 trade month. Additionally, Canadian production volumes have been rising, also pressuring prices.

But demand for a reversed Capline for the January trade month has supported the January-delivery WCS discount to WTI Houston narrowing to now averaging about $6.60/bl. Additionally, higher Saudi Aramco official selling prices (OSPs) for January and tight Iraqi Basrah availabilities have supported heavy Canadian crude prices.

The Argus WCS assessments for both Houston and Cushing also include spot market transactions for heavy Canadian crude Cold Lake that typically trades at the same price level.

The January WCS Cushing discount to Domestic Sweet (DSW) as traded in the spot market against the Calendar Month Average (CMA) Nymex has also narrowed. The January WCS Cushing discount to DSW is averaging about $6.35/bl from nearly $10/bl for December delivery.

Because prior to the Capline reversal it had been more challenging to carry Canadian crude by pipeline to Louisiana, oil brought in with the reversal is likely replacing railed or barged Canadian crude or oil from other origins.

But there is also other heavy crude that could be replaced. In the most recently available data for September, Louisiana facilities imported 2.75mn bl of crude under 30°API, or about 92,000 b/d, according to the US Energy Information Administration (EIA). This included 11,400 b/d from Canada, with the remaining volumes from Mexico, Russia and Brazil.

Capline co-owner Marathon Petroleum owns the 565,000 b/d Garyville refinery, which is connected by pipeline to the Capline end-point in St James, and a likely recipient of crude from the reversal project. Valero has mentioned that the conduit could be a way to more efficiently get Canadian heavy to its St Charles, Louisiana, refinery.

Although the reversed Capline is only carrying about 100,000 b/d initially, there is potential for it to expand to meet refinery demand. The line could also carry Bakken crude southward from Patoka. The project previously included a connect to link Capline to Cushing supply, which would have promised more light crude, but this was cancelled earlier in the year.

In addition to being run at regional refineries, crude brought via the Capline reversal could potentially be exported or encourage other crudes — like more expensive US medium sours — to be pushed to exports as volumes rise. Currently there is not a way for crude from Capline to be brought by pipeline to the Louisiana Offshore Oil Port (LOOP) for more efficient loading on VLCC-sized ships, but it can be exported from Aframaxes or lightered as are other grades without LOOP-access.

By Amanda Smith