Private Pipeline Sector Runs Around Obama Block

In an interesting development following the Obama block on the Keystone XL Pipeline project which was to bring oil from the Alberta tar sands and the North Dakota/Montana Bakken oil shale formation down to Cushing, OK and on to Houston/Port Arthur, TX, two private companies are seeing to it that the pile-up of oil in Cushing has a pipeline route to Houston.  The Seaway Pipeline has carried imported oil from Houston up to the pipeline central routing facilities in Cushing, OK for years.  That pipeline was owned half by its operator, Enterprise Products Partners, LP of Houston and half by ConocoPhillips.  Enterprise Products Partners has long wanted to reverse the direction of flow to carry the comparatively cheap and plentiful oil in Cushing to Houston area refineries which have been hurting for oil due to diminished supply from Venezuela and Mexico.  The pile-up of increased American and Canadian oil in Cushing has caused that oil to sell for as much as $28 a barrel less than the world price.  ConocoPhillips did not mind this because it operates oil refineries in Oklahoma which were making a fortune on refining the under-priced oil there.

But, ConocoPhillips just sold its 50% ownership in the Seaway Pipeline for $1.15 billion to Enbridge Inc. and the pipeline flow direction will now be turned around.  This is part of a massive trend to correct the U.S. pipeline system for the new internal sources of oil and the overall increase in oil production in the U.S. and Canada.  Enbridge is spending $300 million to add new pump stations and to modify old ones.  By the 2nd quarter of 2012, the pipeline will be pumping 150,000 barrels a day of crude oil from Cushing to Houston. 
By mid-2013, the owners believe they may be able to move up to 400,000 barrels of oil a day with pumping improvements.  The rejected Keystone XL Pipeline was to carry up to 700,000 barrels of oil a day from Cushing to Houston.  The Wall Street Journal specualated on Thursday, 17 November that the reversal of the Seaway Pipeline might remove the commercial justification for the segment of the Keystone XL Pipeline from Cushing to Houston.  I believe there will still be good reason to build that additional pipeline segment, at least if the Hardisty, Alberta to Steele City, Nebraska pipeline segment is ever approved.  Perhaps a capacity of a bit less than 700,000 barrels a day will make more sense, but the projected 2013 400,000 barrel capacity of the Seaway Pipeline project could easily be matched.

The reason for all this activity is because U.S. oil production, which had been declining steadily since 1985 and generally since 1970, began to increase in 2009.  Production bottomed out in 2008 at 5 million barrels of oil a day and has increased by 10% since, despite every effort of the Obama administration to halt new oil production projects.  Our exports of refined petroleum products have doubled in the last three years, with us now exporting 2.6 million barrels a day of oil products.  We are now exporting 15% of the gasoline and diesel refined in the U.S.  The main market for our exported Gulf Coast refined products is the rapidly growing Latin American market.

Meanwhile, Obama has also blocked the development of the Utica Shale Oil Formation in the large Wayne National Forest in Ohio claiming concerns about fracking effects.  A mineral lease auction scheduled for December 2012 has been canceled.  There are already nearly 1300 oil and gas wells in that forest and the concerns about hydraulic fracturing are highly bogus.  But no excuse to prevent private sector job creation is too flimsy for the Obama cutthroats.