Crude Oil Deluge to Hit U.S. Gulf Coast: Plains All American Pipeline, L.P. (PAA), Kinder Morgan Energy Partners LP (KMP)

Page 1 of 2

While U.S. crude oil production has soared over the past few years, insufficient transportation infrastructure has led to an oversupply of oil in the American Midcontinent. This has helped drive down the price of domestic oil benchmarked to West Texas Intermediate (WTI) in comparison to the global oil price, which is benchmarked to Brent.

Oil refining companies with access to cheap WTI have enjoyed strong margins, solid earnings, and a surge in their share prices. In contrast, refineries without access have had to rely on expensive crude oil imports, which has whittled down their margins.

Plains All American Pipeline, L.P. (NYSE:PAA)But recent and expected pipeline expansion projects are bringing – and should continue to bring – large supplies of domestic crude oil, from places like North Dakota and Texas, to refineries along the U.S. Gulf Coast. Let’s take a look at what impact this is likely to have on Gulf Coast refiners.

Growing pipeline capacity to Houston
As production from major oil plays in Texas and North Dakota has risen rapidly over the past few years, midstream companies have stepped in to provide outlets for these growing volumes of oil. Significant progress has already been made in terms of pipelines linking major centers of oil production in Texas, like the Eagle Ford Shale and the Permian Basin, to Houston, where many refineries are located.

Last year, we saw new capacity from south Texas to Houston in the form of the Eagle Ford Enterprise pipeline, which is operated as a 50/50 joint venture between Plains All American Pipeline, L.P. (NYSE:PAA) and Enterprise Products Partners L.P. (NYSE:EPD). The system includes a 140-mile crude and condensate pipeline, as well as an additional 35-mile pipeline segment, with a targeted capacity of 350,000 barrels per day.

Also serving production from the Eagle Ford is Kinder Morgan Energy Partners LP (NYSE:KMP)‘s recently constructed pipeline that originates in the Eagle Ford and transports crude oil and condensate to several terminal facilities, which then provide access to Gulf Coast refiners. The pipeline, known as the Kinder Morgan Crude Condensate pipeline, went into service in June and has a targeted capacity of 300,000 barrels per day.

Another major pipeline that went into service in April of last year – the West Texas-Houston Access project – serves the Permian Basin, another highly productive oil play in the western part of Texas. The pipeline, operated by Sunoco Logistics Partners L.P. (NYSE:SXL), links existing pipelines from Goodrich, Texas, to Houston and had an initial capacity of up to 40,000 barrels per day.

U.S. Gulf Coast: the coming deluge
Many more such projects are expected to come on line this year, providing additional capacity to Houston.

For instance, the first phase of Magellan Midstream Partners, L.P. (NYSE:MMP)‘ Longhorn Reversal project is nearing completion. The project entails reversing the flow of the Crane-to-Houston segment of the company’s existing Longhorn Pipeline, which transports refined products from Houston to El Paso.

It will primarily serve production from the Permian Basin, which will be transported from nearby Crane, Texas, to Houston. Once the pipeline goes into service, which is expected this quarter, it should have an initial capacity of 75,000 barrels per day and another 150,000 barrels per day by the end of the second quarter.

In addition to projects like these that will transport domestic crude to the Gulf Coast, further inflows of crude produced outside our borders are likely to further boost Gulf Coast crude supply. Two major sources are expected to be offshore wells in the Gulf of Mexico and Canada’s tar sands.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!