A. D. Koen
Senior Editor-News
Plummeting U.S. oil production and growing import volumes have North American pipeliners and terminal operators expanding to fit changing supply patterns.
Production is dwindling in all major oil provinces. But diminishing supplies in the Rocky Mountain, Midcontinent, and Midwest regions especially are contributing to regional supply imbalances.
Most in question is adequacy of crude oil pipelines delivering supplies to customers in Petroleum Administration for Defense Dist. (PADD) II. PADD II's two largest market areas lie in the Midcontinent and Midwest. Supply shortages are not expected in other PADDS.
Demand in PADD II for waterborne imported crude to replace lost domestic supplies by the end of the century could increase enough to challenge or surpass import capacity.
With U.S. crude pipelines that move oil into PADD II running essentially at capacity, several pipeline expansions, reversals, or conversions are in various stages of planning or construction.
By mid-1995, combined pipeline capacity into PADD II from the U.S. Gulf Coast and Canada is expected to jump by more than 400,000 b/d. In addition, the flexibility of shippers moving oil into PADD II in the past year has increased with start-up of a 1.2 million bbl crude oil storage and transfer site at Cushing, Okla.
While all that should delay serious supply problems, PADD II's crude oil transportation outlook after 2000 is less certain.
U.S. waterborne oil import capacity for the time being appears adequate to supply all the crude domestic refiners can handle, and present activity includes projects to upgrade and streamline import facilities. But as import volumes continue edging upward, the strain will continue growing on U.S. import facilities to keep pace with demand.
Predicting U.S. crude oil demand is complicated by the extent to which domestic refiners might choose to import intermediate or finished refined petroleum products rather than add refinery capacity. To retain as much flexibility as possible, some companies are building facilities capable of handling crude oil and refined products.
Still, many observers believe it is only a matter of time before major investments will be needed to assure the adequate of U.S. import capacity.
PADD II SUPPLY/DEMAND
Purvin & Gertz Inc., Houston, traces the decline of domestic oil supplies in the U.S. and PADD II from the mid-1980s.
Statistics compiled by the consulting company show North American produced crude in 1985 accounted for about 93% of the 2.74 million b/d of oil processed on average by PADD II refiners.
That supply included more than 1 million b/d produced in PADD II, 1.1 million b/d of U.S. crude transferred into PADD II, and 367,000 b/d of oil from Canada. PADD II supplies of waterborne crude imported into PADD III through U.S. Gulf Coast ports in 1985 amounted to about 200,000 b/d.
By 1993, Purvin & Gertz estimates, the average share of PADD II oil supplied by North American producers had declined to little more than 75% of the district's 3.1 million b/d crude market. Crude produced and consumed in PADD II accounted for most of the decrease, registering a decline of more than 400,000 b/d.
Most of the market share lost by declining PADD II oil production since 1989 was claimed by imports. Canadian supplies into PADD II nearly doubled by 1993, jumping to more than 650,000 b/d. Waterborne supplies of imported oil to PADD III, meantime, nearly quadrupled to almost 690,000 b/d. Transfers of U.S. crude oil from other regions into PADD II at the same time increased about 30,000 bid but lost an estimated 4% of market share.
Most telling, total shipments of crude oil into PADD II, including North American crude from outside the district and imported supplies, in 1993 amounted to about 2.5 million b/d, 800,000 b/d more than in 1985 and well above transportation volumes expected just a few years earlier to exceed combined capacity of crude lines serving PADD II.
A group study in the late 1980s sponsored by Amoco Pipeline Co. estimated the shortfall of crude pipeline capacity to move waterborne imports into PADD II by 1993 would amount to 158,000 b/d and by 2000 to about 553,000 b/d.
Clearly, crude pipelines through 1993 added enough capacity to satisfy PADD II demand for transferred and imported oil. Similarly, pipeline expansions and reversals now under way appear capable of providing adequate capacity for PADD II refiners through the end of the century.
PADD II MARKET OUTLOOK
While Purvin & Gertz expects PADD II crude oil demand to remain about flat through 2005, PADD II production is expected to continue sliding.
Waterborne imports by 2005 could account for nearly half of PADD II oil demand.
PADD II producers are expected to supply about 475,000 b/d of oil to PADD II refiners in 2000 and 400,000 b/d in 2005, 14.8% and 12.5% of average PADD II crude runs, respectively. Correspondingly, the volume of crude entering the district likely will continue rising-to nearly 2.6 million b/d in 1995, more than 2.7 million b/d in 2000, and more than 2.8 million in 2005.
With total U.S. oil production falling to less than 6 million b/d in 2000 and continuing to decline, transfers of domestic crude into PADD II also will drop to an estimated 800,000 b/d in 2005, less than 25% of district consumption.
Similarly, after peaking at more than 800,000 b/d in 1995, Canadian supplies entering PADD II are expected to decline to less than 750,000 b/d in 2000 and 500,000 b/d in 2005.
With all North American crude oil supplies available in PADD II expected to decline, it will fall to waterborne imports to make up the difference. Purvin & Gertz expects more than 1 million b/d of such imports to enter
PADD II in 2000 and more than 1.5 million b/d in 2005, or about 33% and 47% of district demand, respectively.
While PADD II's long term supply outlook indicates a significantly expanded role for waterborne imports, PADD II markets short term are expected to reflect faster growth of Canadian supplies.
Purvin & Gertz predicts the volume of Canadian oil entering PADD II markets in 1995 will be more than 150,000 b/d ahead of last year-a nearly 5% gain of market share-and serve more than 25% of district demand. Canada's share of PADD II crude markets will decline to 23% in 2000 and to slightly more than 15% in 2005.
CANADA-U.S. CAPACITY
Canada-U.S. crude oil pipeline capacity is to begin rising by the end of this month as Interprovincial Pipe Line Inc. (IPL), Edmonton, Alta., a unit of Interprovincial Pipe Line Energy Inc., Calgary, begins operating part of a $405 million, 170,000 b/d system expansion. IPL expects to have about 70,000 b/d of added capacity on line in December and to have expansion components in full operation by mid 1995.
The IPL project is the major reason Purvin & Gertz expects lower levels of waterborne imported crude to enter PADD II from the U.S. Gulf Coast in 1995.
The IPL expansion, dubbed Line 13, will ship oil produced in western Canada from Hardisty, Alta., to Clearbrook, Minn., through a combination of new, reactivated, and rededicated 16 in., 18 in., and 20 in. line.
Combined with facilities being built in the U.S. by IPL affiliate Lakehead Pipe Line Co. Inc., the project will be able to deliver about 145,000 b/d of crude to markets in the Chicago area.
About 75% of the oil produced in western Canada moves through the IPL-Lakehead system to markets in eastern Canada and the U.S. For the past 3 years, producer requests to ship oil on the IPL-Lakehead route surpassed capacity by as much as 55%. Line 13 will provide producers in western Canada with relief from the capacity apportionment system put in place because of increasing calls for transportation capacity.
"This is a prime example of how the North American pipeline industry is realigning to be able to ship increased quantities of imported oil in the face of declining continental supplies," an IPL official said.
IPL's system wide crude throughput in 1993 was about 1.5 million b/d, 100,000 b/d more than in 1989, but volumes shipped to primary markets in some cases changed twice as much.
For example, IPL deliveries to U.S. markets in 1993 averaged 732,000 b/d, compared with 534,000 b/d in 1989. Shipments to eastern Canada, meantime, slipped to 531,000 b/d in 1993 from 675,000 b/d 4 years earlier. At the same time, shipments to Canada's prairie provinces-Manitoba, Saskatchewan, and Alberta-increased by 35,000 b/d to 234,000 b/d.
Kenneth D. Miller, a principal in the Houston office of Purvin & Gertz, says IPL's expansion will depress crude prices on Midwest markets in 1995 and likely blunt PADD II demand for domestic and imported oil delivered through the regional hub at Cushing.
Imported oil, Miller says, likely will be rerouted to markets on the U.S. Gulf Coast.
TRANSFERS INTO PADD II
Also about mid-1995, crude oil pipeline capacity into PADD II is to increase from the south as Mobil Pipe Line Co. finishes reversing two lines in East Texas.
The reversals are being undertaken because shipments of inland domestic crude previously shipped south from West Texas, East Texas, and the U.S. West Coast has slowed to a trickle and no longer is adequate to meet demand at Mobil's 310,000 b/cd Beaumont, Tex., refinery.
Specifically, Mobil by May 1, 1995, expects to finish reversing:
- A 20 in., 200,000 b/d pipeline that formerly transported crude oil from Corsicana, Tex., to Mobil's Beaumont refinery.
- A 16 in. pipeline between Corsicana and Ringgold, Tex., that had been relaying crude oil from West Texas through Corsicana to Mobil's Beaumont plant.
Combined, the projects will create for Mobil about 250,000 b/d of crude pipeline capacity from Corsicana into PADD II markets, including about 150,000 b/d into the Midwest through a 20 in. pipeline to Patoka, Ill., and 100,000 b/d indirectly into the Midcontinent at Cushing. So not all crude shipments Mobil will route into PADD II through the new supply links will be waterborne imports.
Capline, with 1.1 million b/d of capacity the largest pipeline delivering crude into PADD II, has been the principal inlay of moving waterborne crude imports to Midwest markets. But with capacity on Capline often prorated during peak summer shipping months or fully subscribed at times beyond peak delivery periods, shippers are turning more and more to alternative transportation routes.
"As Midwest refiners have been unable to move as much crude oil up Capline as they might have wanted, they have had to scramble around for crude from other sources," a Mobil official said.
"That is a market we're hoping to serve with our Beaumont-Corsicana reversal project."
Moreover, with a 16 in. pipeline capable of moving 130,000 b/d of oil from West Texas into Corsicana and a 12 in. line from East Texas shipping 25,000 b/d of oil into the city, reversing the 200,000 b/d Beaumont-Corsicana pipeline will allow Mobil to expand capacity of either northbound crude line out of Corsicana if demand in the Midcontinent or Midwest warrants an expansion.
PLAINS' CUSHING TERMINAL
Declining supplies in PADD II, increasing imports, and marginally adequate crude transportation systems prompted Plains Terminal & Transfer Corp. (PTT), a unit of Plains Resources Inc., Houston, to build a grassroots storage and terminal project at Cushing for third part), shippers.
With a total 23 million bbl of storage capacity, Cushing is considered the largest U.S. wet barrel petroleum hub.
Becoming fully operational last December, PTT's facility is designed to allow shippers the greatest transportation flexibility possible. In addition to computerized instrumentation and measurement, PTT's storage capacity is spread among 18 tanks-14 with 100,000 bbl capacity and four with 150,000 bbl capacity-to allow PTT to segregate cargoes during handling and storage to assure that specifications are maintained.
The facility has dedicated receipt and delivery connections that allow PTT to simultaneously receive and transfer crude oil or product shipments at each dedicated pipeline system's maximum flow rate. Combined receipt capacity from four dedicated pipeline systems amounts to 38,700 bbl/hr. The largest of seven dedicated delivery interconnects can accept crude from PTT at a rate of as much as to 14,100 bbl/hr.
Other terminal and transfer facilities at Cushing, including some more than 70 years old, use common receipt and transfer systems that greatly limit operating flexibility.
"Crude varieties at Cushing used to consist mostly of domestic sweet and sour," said Mark Shires, PTT president. "Now we're seeing a dozen different kinds of foreign sour crudes, all of which have to be segregated.
"In the future, even greater volumes and varieties of crude will be arriving at Cushing. We want to be able to receive oil from as many sources as possible with no scheduling conflicts and simultaneously deliver out as many different types of crude to as many destinations without conflict.'
Shires said PTT chose Cushing as the site for a new crude terminal because the hub's combined receiving capacity amounts to about 1.5 million b/d, or about 500,000 b/d more than combined outbound transportation capacity. PTT reasoned the most likely way to increase crude pipeline capacity PADD II would involve inline reversals, expansions, or new construction into Cushing.
PADD II CAPACITY
Pipeline projects by IPL and Mobil within a matter of months are expected to ease short term oil transportation constraints for PADD II oil markets. But PADD II crude demand coupled with continuing U.S. declining production within 5-10 years could recreate a similar supply imbalance.
One long discussed project that quickly could alleviate a transportation bottleneck into Cushing is reversing the flow of Phillips Petroleum Co.'s former Seaway pipeline and converting it back to oil service from gas.
With an original design capacity of up to 600,000 b/d, the 500 mile, 30 in. Seaway pipeline-now known as Seagas and operated as Phillips Gas Pipeline Co. in Oklahoma and as Seagas Pipeline Co. in Texas-would quickly balance Cushing's inbound and outbound crude capacity and further delay any plan for a major new oil line. While few facilities at Cushing could receive such large shipments, PTT's new terminal and transfer facility could.
"It's a natural fit," Shires said.
Phillips has been considering for some time the possibility of reversing Seaway and returning the pipeline to oil service, but nothing is imminent.
The next most likely way to significantly increase pipeline capacity for Canadian oil into the Midwest would be for IPL to reverse its Line 9, a 518 mile, 30 in. crude oil pipeline originating at Sarnia, Ont. Built in the mid 1970s to ship as much as 290,000 b/d of crude oil from western Canada to markets at Montreal, Line 9 has never operated at full capacity and today is operating at very low volumes.
Several shippers in eastern Canada at last report were talking with IPL about the possibility of reversing the line to ship waterborne oil imports into Montreal and Sarnia. Discussions are preliminary.
Purvin & Gertz's Wise said it is likely that reversing the Sarnia-Montreal crude line will cause imports to displace some Canadian crude now entering markets in Ontario, freeing the Canadian volumes for PADD II. Initial volumes on IPL's Sarnia-Montreal system in the event of a line reversal likely would amount to only about 160,000 b/d, but the system could reach original design capacity. Ontario refineries currently consume about 420,000 b/d of crude, almost all from Canadian sources.
"So if Ontario imports even 300,000 b/d of crude, area refiners still would need some Canadian crude to supplement that supply," Wise said.
PADD III IMPORTS
Future demand in PADD E for waterborne crude oil imported through the U.S. Gulf Coast has prompted plans to streamline and add import capacity.
Interest in import facilities is high on the western Gulf Coast because it makes more sense logistically to import feedstocks near plants in which they will be used.
Declining inland supplies in recent years forced Diamond Shamrock Inc., San Antonio, to begin importing about 50,000-55,000 b/d of crude from the North Sea and West Africa through the Port of Corpus Christi, Tex., to feed its Three Rivers, Tex., refinery.
When an expansion of Three Rivers in the past year boosted capacity to 70,000-75,000 b/d, third party storage and transfer facilities at the port Diamond Shamrock had been using to bring oil into the U.S. became inadequate.
As a result, the company by 1995 will begin shifting crude oil imports from third party faculties into a 1.2 million bbl storage terminal it is building on a 25 acre tract at the inner Corpus Christi harbor. A fourth 400,000 storage tank is to be added within 2 years.
Oil is to reach Diamond Shamrock's new tank farm from the port authority's Oil Dock 1, less than 1 mile away, through a 36 in. pipeline that will allow off-loading of a 500,000 bbl lightening tanker in less than 24 hr. The project includes a 70 mile, 16 in. fully buried marine/onshore crude pipeline capable of delivering as much as 120,000 b/d to the Three Rivers refinery.
Bob Mehall, Diamond Shamrock's senior vice-president, said the net crude storage and pipeline capacity gained by Diamond Shamrock's project will be small. But without the new facilities, available crude storage at the port would have dipped in first quarter 1995, when one third-party facility used b Diamond close.
The storage picture would have become more critical in 1996 when Three Rivers' capacity is to increase again, by 10,000 b/cd to 85,000 b/cd. The terminal and pipeline exceed current needs at Three Rivers but would allow further refinery expansions to as much as 120,000 b/d.
"Now we're not limited with expansion plans at Three Rivers," Mehall said. "If they should materialize, we would be able to supply the crude.Construction is well under way on the site's first three 400,000 bbl tanks, and Mehall said Diamond Shamrock expects to begin pumping oil into storage by yearend.
Meantime, Kingfisher Marine early this month was laying the marine portion of the crude line across Nueces Bay. The directional bore is complete under the bay's northern shore for the line's approach to land.
PETROPORT PROJECTS
U.S. Gulf Coast oil import capacity could jump significantly in 1998 if Blue Dolphin Energy Co., Houston, manages by yearend 1994 to close a deal to acquire the assets of Petroport LC.
Petroport is a proposed deepwater oil port and storage terminal using subsea storage caverns leached from an underground salt dome in the Gulf of Mexico about 35 miles off Freeport, Tex. (OGJ, Sept. 27, 1993, p. 32).
Lying in about 110 ft of water, Petroport is to be able to unload the world's biggest tankers through as many as three single point mooring buoys.
Petroport backers expect the $450500 million facility to be able to handle as much as 100-125,000 bbl/hour of petroleum liquids at far lower cost than any proposed or existing U.S. deepwater port. Petroport also is expected to be able to import oil into the U.S. cheaper, faster, and safer than lightening or transhipment through various Caribbean ports.
Once ashore, oil unloaded at Petroport would be able to access existing distribution systems from an onshore staging facility to reach markets on the U.S. Gulf Coast and in the Midcontinent and Midwest.
Blue Dolphin in August agreed in principle to acquire Petroport and in mid-November still was wrapping up the agreement.
Michael J. Jacobson, president of Blue Dolphin, says Petroport's revolutionary design is the key to its relatively low construction and operating costs. It is the first proposed deepwater oil port to combine offshore oil handling facilities with subsea underground salt dome storage caverns.
The per barrel cost of constructing underground storage caverns in a subsea salt dome is expected to be about 10% of the cost of building steel tanks for storage onshore and about 20% of the cost of onshore underground storage.
While the possibility persists that some U.S. refiners, especially those with non-U.S. equity partners, might decide to import large volumes of intermediate or finished refined products, Jacobson said Petroport should be well positioned to satisfy import needs, whatever trends develop.
"Petroport will be able to handle crude oil and refined products because it will have multiple segregated caverns within the salt dome," he said. "We could have one vessel unloading crude oil and another unloading a refined product."
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
Issue date: 11/21/94
