LLS trade options expand with looming Capline reversal

Trading of the coastal benchmark crude Light Louisiana Sweet (LLS) has picked up at locations other than the Capline terminal in St James, Lousiana, as a reversal of the pipeline appears more likely.

Reported LLS trade volumes with delivery options including Locap and Plains terminals in St Jameshave totaled 35,000 b/d so far for the prompt May trade month for the US pipeline market, compared to LLS Capline terminal liquidity reported at 51,000 b/d. That compares to roughly 66,000 b/d of LLS trade with non-Capline options for all of 2018.

A roughly 15¢/bl premium to deliver LLS to terminals other than Capline has also nearly disappeared, with the buyer option for delivery at multiple St James terminals valued at or near parity for the prompt May trade month.

The grade's marked change in trading patterns comes as discussion resumes regarding the reversal of the 1.2mn b/d Capline pipeline that connects St James to the Patoka area in Illinois.

Capline, once a major light sweet crude artery to the US midcontinent, moved nearly 200,000 b/d as recently as November 2017. But that was just before Plains brought the 200,000 b/d Diamond pipeline into service from Cushing to Valero's 190,000 b/d Memphis refinery. Capline flows have remained depressed since then and dropped sharply in 2018. Northbound crude flows in August 2018 averaged about 16,000 b/d, according to the most recent data from Louisiana state regulators.

Earlier this year, the owners of the underutilized pipeline launched a new binding open season for a reversal of the line that will run until 30 April. The reversal would offer southbound service from Patoka to St James or to Liberty, Mississippi. It also adds an origination point in Cushing, Oklahoma, as part of a joint tariff with Plains All American Pipeline's Diamond line.

Although the Diamond line may undercut the need for Capline supply at the midcontinent, LLS crude is still desired among regional Louisiana refiners. The demand remains in part due to its known specifications enforced at the Capline terminal that include a gravity range between 34°-41°API and a maximum of 0.40pc sulfur, as well as limits on light ends and acid content.

Prior to the prolific growth in shale output, LLS was a necessary source of supply for domestic refiners coming from offshore US Gulf production. As US Gulf production became increasingly sour, the grade became blended using a mix of domestic production and imported crude.

Aside from Capline, Locap and Plains terminals, LLS liquidity could also be seen with delivery at St James NuStar and Shell Sugarlandin the future. These are important connection points for the Louisiana crude market and have been heard to take delivery of the light sweet grade.