Delek expands midstream operations

Delek US Holdings Inc. and its logistics arm Delek Logistics Partners LP are expanding midstream operations to gain access to crude oil feedstock sourced at Cushing, Okla., as part of a plan to increase and improve crude flexibility at Delek US refineries.

Delek US Holdings Inc. and its logistics arm Delek Logistics Partners LP are expanding midstream operations to gain access to crude oil feedstock sourced at Cushing, Okla., as part of a plan to increase and improve crude flexibility at Delek US refineries.

An indirect, wholly owned subsidiary of Delek Logistics has purchased a 33% ownership interest for $128 million in Red River Pipeline Co. LLC from an affiliate of Plains All American Pipeline LP to form a joint venture that owns capacity on the Red River pipeline, the Delek companies said.

The JV comes amid Red River’s existing plan to proceed with an expansion project to increase pipeline capacity to 235,000 b/d from its current 150,000 b/d.

As part of the pipeline-interest acquisition, Delek US will increase its direct access to crude feedstock originating in Cushing for transport to Longview, Tex., to 100,000 b/d from a current 35,000 b/d utilizing a portion of the new capacity through a 10-year, 65,000-b/d throughput and deficiency agreement with the Red River joint venture that will begin upon completion of the expansion project.

Alongside enhancing Delek US’s crude slate optionality for three of its four refineries, the new investment also gives the operator the ability to ship to the US Gulf Coast at very attractive tariffs, said Uzi Yemin, chairman and chief executive officer of Delek Logistics’ general partner and chairman, president, and chief executive officer of Delek US.

Following the pipeline expansion project, Delek US’s 302,000-b/d refining system should have access to about 125,000 b/d crude priced on a Cushing basis, Yemin added.

The Red River crude pipeline is a 16-in. pipeline extending from Cushing to Longview, Tex. Currently, the JV has access to 60% of capacity from Cushing to Hewitt, Okla., and 100% of capacity from Hewitt to Longview.

A proposed $51-million expansion project to increase the pipeline capacity to 235,000 b/d is scheduled to be completed during first-half 2020. Upon the project’s completion, the JV will have access to about 69% of capacity from Cushing to Hewitt and 100% of capacity from Hewitt to Longview.

From Longview, crude can be delivered into Delek US’ Tyler, Tex., El Dorado, Ark., and Krotz Springs, La., refineries using various Delek Logistics pipelines that support those operations, including the East Texas crude logistics system, Paline pipeline, Caddo pipeline, and other third-party systems.

In light of the International Maritime Organization 2020 regulations and the current forecast of new pipeline projects planned out of the Permian basin, Delek US said this new commitment will provide its operations improved access to a growing number of segregated crude grades as well as pricing available in the Cushing trade hub.

Krotz Springs refinery update

Separately, Delek US said it has started preparations to minimize any potential effects on operations at its 74,000-b/sd Krotz Springs refinery ahead of the US Army Corps of Engineers’ plan to open the Morganza Spillway in Louisiana in early June.

“Our focus is to keep the employees and the facilities safe from the potential increase in water levels. Currently, based on [ACE] flood inundation maps, water levels are not expected to impact the refinery,” Delek US said, noting that during 2011, the refinery did not sustain any water damage, and since that time, levees around the refinery have been built and maintained.

At this time, Delek US said it expects any impacts to be minimal to the refinery operations as it takes steps to optimize inventory levels, prioritize barge movement, and ensure product movement with an unidentified third-party pipeline company.

The update follows Delek US’s announcement earlier in the month that it will invest $150 million in a series of projects over the next 5 years to improve operations at the Krotz Springs refinery that will include infrastructure improvements, plant construction and renovations, and installation of machinery and equipment (OGJ Online, May 24, 2019).

The proposed Krotz Springs enhancement projects follow Delek US’s early April completion of its 6,000-b/sd alkylation unit to add product flexibility and increase margin potential at the refinery (OGJ Online, Nov. 29, 2018; Jan. 9, 2018).

Contact Robert Brelsford at rbrelsford@ogjonline.com.

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