Gulf of Mexico sour crude-oil lines to see increase

Fig. 1 [44,065 bytes]

Prospects for increased production in the U.S. Gulf of Mexico are changing the outlook for crude-oil systems, as well as for onshore natural gas and NGL infrastructure.

The effect of deepwater discoveries on light, sour crude systems was covered by David Chapman of Texaco Pipe Line Inc., Denver, at the 1997 API Pipeline Conference in Dallas earlier this year.

Offshore systems

Gulf crude-oil pipelines, said Chapman, form an intricate system that varies significantly in size, length, crude quality, and onshore delivery points.

Besides the large number of crude-oil main lines that deliver into several onshore delivery points in both South Louisiana and South Texas, there are four to five times as many laterals and gathering lines feeding into these main lines.

These pipelines ship a variety of crude qualities.

Discussion of light sour crude-oil pipelines necessarily focuses on the central gulf where production is established in shallower water and has not historically been the predominant crude supply to onshore systems.

In fact, said Chapman, for some time, there were only two main sour streams: Bonito and Eugene Island (Fig. 1). Although these streams have each changed slightly over time, they have remained different enough to be priced differently and have created separate markets.

The Bonito stream is approximately 35° API and 0.8% sulfur; its pipeline has a capacity of approximately 85,000 b/d and has been averaging approximately 70,000 b/d.

The Eugene Island pipeline system stream is approximately 31° API and 1.6% sulfur; the pipeline has a capacity of approximately 215,000 b/d and has been averaging approximately 180,000-200,000 b/d.

Until recently, then, the gulf sour pipelines have had a capacity of approximately 300,000 b/d and have been operating at 80-90%.

But new deepwater production is changing this situation, said Chapman. In fall 1996, Mars pipeline began shipping crude of approximately 31° API and 2.0% sulfur with a capacity of approximately 200,000-300,000 b/d.

The Amberjack pipeline has begun commingling with Mars this year with similar capacity.

The Poseidon pipeline, which was commingling with Eugene Island earlier this year, has become a segregated stream this summer of approximately 26° API and 2.0% sulfur with a pipeline capacity of approximately 300,000 b/d.

The Auger III pipeline has a capacity of more than 200,000 b/d.

In addition, much of the sour production in the central gulf can be delivered to more than one of these pipelines and in time will change these streams.

In 1997, therefore, six major light sour crude pipelines will be operating in the central gulf with potentially four or five unique crude streams and combined pipeline capacity of approximately 1.4 million b/d.

If one assumed these pipelines would be at least 50% full, said Chapman, then there would be more than 500,000 b/d of new sour production moving ashore for distribution. Some estimates have even suggested that volume could be as high as 1 million b/d.

That would be a 200-300% increase in light sour crude production.

Pipelines, refineries on shore

Chapman said there are three main onshore systems into which these sour offshore pipeline systems can deliver (Fig. 2) [28,381 bytes].

The Mars/Amberjack pipelines deliver into Louisiana Offshore Oil Port (LOOP) at Clovelly, the Eugene Island/Poseidon pipelines deliver into the TP* systems at Houma, and the Bonito/Auger III pipelines deliver into the Ship Shoal system.

From Clovelly and Houma, pipeline systems are in place to deliver to local South Louisiana refineries, to refineries to the U.S. West and Midcontinent, and to the St. James (La.)/Capline refineries. From Ship Shoal deliveries can also be made to the St. James/Capline refineries.

The combined capacities of these three onshore systems allow for deliveries of approximately 2 million b/d, currently enough capacity to handle offshore deliveries, said Chapman.

The most obvious refineries that might run gulf light sour crudes are the local Mississippi River refineries, St. James refineries, Capline refineries, southwest Louisiana and southeast Texas refineries, and Midcontinent refineries:

The Mississippi River refineries have a sour capacity of approximately 100,000 b/d
The St. James refineries have a sour capacity of approximately 700,000 b/d
Capline is averaging approximately 400,000-600,000 b/d of sour crudes
Refineries to the west have a sour capacity of approximately 2.8 million b/d
Mobil and Texaco pipelines can deliver gulf sour crudes into the Midcontinent at an average of 100,000-160,000 b/d of sour crude.

Factors

Chapman said this might seem to be enough refinery sour demand to meet existing and new gulf sour-crude development.

Several factors, however, will challenge companies that decide to become involved with building offshore crude-oil pipelines.

It is uncertain if, with increasing sour production from the gulf and elsewhere, there might come a time when either sour pricing will begin to drop or refinery sour capacity will continue to increase and, therefore, support price levels. Either way, said Chapman, this uncertainty will drive production levels and pipeline volumes.

At the same time, if the obvious varieties in sour streams cause much difference in pricing, quality management in streams may begin to appear or producers might consider which lines they will ship on based on a typical stream quality.

This is an important consideration for deciding to build and operate these pipelines.

As an extension of these crude-quality issues, said Chapman, industry must develop quality-bank strategies that will attract producers into pipelines. Today, quality-bank values are normally either fixed or market based. Fixed values (like "gravcap") do not change with variances in light-to-heavy or sweet-to-sour spreads. Market-based values, on the other hand, take these factors into account.

At times, therefore, each type of quality bank may be more favorable than the other. It's difficult to say which type of quality bank will attract more shippers, but it is certain it will have some effect on a producer's decision on where to connect.

Crude trading will also play a role in attracting shippers to various pipelines. Because producers and end-user refiners are not usually the same company, much of this crude will be traded several times between entering the pipeline and delivery to a refinery.

Finally, Chapman noted that the gulf is not the only location where sour-crude production is increasing. Many foreign producers are targeting U.S. sour markets, and much of this production is coming through South Louisiana and the Gulf Coast.

These barrels are competing directly with gulf crudes in the more local South Louisiana and South Texas markets. In addition to these marine barrels, Express Pipeline is bringing more Canadian crudes into some of the peripheral markets for gulf sour crude, like Patoka and the Midcontinent.