Following Shelving Of Keystone XL, Attention Turns To Capline

Originally authored by Jim Bentein in the Daily Oil Bulletin and reposted with permission: Following Shelving Of Keystone XL, Attention Turns To Capline | Daily Oil Bulletin

It could be called the phantom pipeline, since its owners will provide little information about the Capline Pipeline, which has the potential to transport several hundred thousand bbls a day of Canadian bitumen and heavy crude to Louisiana, where it can be upgraded and refined or exported.

However, western Canadian producers and midstreamers are certainly aware of it and of its potential to move the region’s landlocked crude to value-added markets in the U.S. and beyond.

Capline, designed initially to transport 417,000 bbls/d of imported crude from the Louisiana coast to the hub in Patoka, Ill., then to Midwest refineries, is about to have a reset. And its reborn status could be very good news for western Canadian oil producers.

The 1,017-kilometre, 40-inch diameter line, originally called the Cajun Pipeline, went into service in 1967. Its capacity was increased to 1.2 million bbls/d in the 1980s.

When imports to the U.S. from offshore declined to a trickle, Capline essentially became a white elephant.

But its owners, Plains All American (54 per cent), Marathon Petroleum Corp. (33 per cent) and BP plc (13 per cent), had other plans and in 2019 they decided to go ahead with a project that will see its flow reversed, starting early next year.

It will initially be able to transport light crude from the Memphis area to the terminus at St. James, La., where Plains and Marathon have invested heavily in storage and loading facilities. The following year heavy oil and bitumen will be able to flow from the hub of Patoka. Plains is doubling the capacity on its Diamond Pipeline to 400,000 bbls/d, while also building a 60-kilometre connection from Diamond to Capline, which will accommodate heavy crude transport.

Analysts have said Capline could transport 600,000 to 650,000 bbls/d of heavy crude to the Gulf Coast, just about 200,000 bbls/d lower than what the ill-fated Keystone XL pipeline would have transported to the Texas coast.

The majority owners, Plains Midstream and Marathon, have been very circumspect in replying to questions about Capline.

An email to Plains All American was unanswered. However, its Canadian division, Plains Midstream Canada, which has 5.2 million bbls of crude storage capacity in Western Canada and 4,500 kilometres of pipelines, acknowledged receipt of the email. However, a spokesperson said it could not “provide any insight for your piece.”

Marathon Petroleum spokesperson Jamal Kheiry did respond. In an email, he wrote that the project is on schedule. “And we have received significant shipper interest,” he wrote.

He added that the companies won’t reveal what they have spent on the project.

“We’ve not publicly disclosed any cost information regarding the reversal project,” he wrote.

Kathleen Ganley, the energy critic for the opposition NDP in Alberta, told the DOB the government’s financial contribution to spur the development of Keystone was ill-advised, especially since opinion polls in the U.S. were showing last year the fossil-fuel-unfriendly Democrats would occupy the White House again.

The energy critic said she is aware of the Capline reversal project, but hasn’t yet talked to its backers.

She suggested it might have made more sense for the government to invest directly or indirectly in it, since, as an existing pipeline, it was unlikely to be shut down by environmentalists or by regulators (it already has all the approvals it needed).

Alberta Energy Minister Sonya Savage is certainly aware of Capline and she has spoken about it to its owners, as well as to Enbridge Inc. and TC Energy Corporation, which have several expansion plans that could link with the pipeline.

“The Minister of Energy is aware of the Capline proposal and has discussed it with a number of industry stakeholders,” she replied in an email. “The proposal is one of five Canadian and six U.S. pipeline optimization proposals that could be completed in the relatively near future. Optimization has the potential to enhance pipeline capacity and increase Alberta’s options to get our oil to the U.S. Gulf Coast. Current optimization proposals have the potential to add more than 500,000 [bbls/d] of additional capacity of Alberta oil to U.S. markets….”

Three years ago, during an earnings call, Enbridge CEO Al Monaco talked about the potential of Line 3 and other expansions to feed Canadian crude to a reversed Capline.

The argument that, once Trans Mountain, Line 3 and other pipeline enhancements go into operation there would be enough capacity for western Canadian crude exports was presented in a recent paper written by Alexandra Clark, a project engineer with TC Energy. However, the paper was not written in that capacity and instead was written for the Calgary-based Young Pipeliners Association of Canada (YPAC), for which she oversees communication and marketing.

Her paper, entitled “Is there sufficient pipeline capacity out of Western Canada,” was released in mid-April.

Citing a recent study by the Canada Energy Regulator (CER), “Canada’s Energy Future 2020: Energy Supply and Demand Projects to 2050,” she bases her paper on the CER’s estimate that peak crude production in Western Canada will reach 5.8 million bbls/d by 2039, before declining to 5.3 million bbls/d by 2050 (there are other scenarios as well). Crude production in 2019 (before a COVID-19-caused dip) was 4.9 million bbls/d.

The existing pipeline takeaway capacity is about 4.28 million bbls/d. In her paper she points to plans by TC and Enbridge to optimize their existing systems. That would add an estimated 50,000 bbls/d to TC’s existing Keystone line, 25,000 bbls/d to the Enbridge Express line and about 50,000 bbls/d on the Enbridge Mainline.

In addition, Enbridge, with a view to improving access to the reversed Capline, has said expansions on its Flanagan South and Seaway pipelines could add an additional 250,000 bbls/d of capacity to the U.S. coast (via Capline for one). Crude could also be loaded onto tankers and shipped to the Gulf Coast (although a more logical market is California and Washington state).

In total, counting Enbridge Line 3, Trans Mountain and the optimizations, Canada will have the capacity to export about 5.34 million bbls/d by 2023, she estimates. In addition, about 600,000 bbls/d is consumed within Canada now.

The YPAC paper concludes that, despite the demise of Keystone XL, there will likely be enough pipeline export capacity in the future, especially given expected demand declines, as a result of the adoption of more electric vehicles and other factors.

“Increased utilization of existing assets through system optimizations and expansion projects can continue to increase the capacity of pipeline systems into potential markets and allow shippers flexibility as the North American pipeline system is debottlenecked,” the paper concludes.

In the paper Clark adds that assessment is based on the forecasted demand estimates being accurate.