Oklahoma oil producers will soon find it easier to get their crude to Gulf Coast refineries as the southern leg of the Keystone pipeline is expected to become operational Jan. 3.
“It's a very positive move for us,” said Tony Say, CEO of Oklahoma City-based Clearwater Enterprises. “We have a lot of oil being developed in the state. Having another outlet going south is very positive for us.”
The 485-mile-long pipe likely will help Oklahoma producers receive a price more competitive with producers along the Gulf Coast, said Jeff Hume, Vice Chairman of Strategic Growth Initiatives at Oklahoma City-based Continental Resources Inc.
“It should provide a larger market for oil produced in the Mid-Continent,” he said.
“It can go to the Gulf Coast and compete with other grades of crude where the refineries are located,” he said.
The line has been under construction and was expected to open near the end of the year.
Unlike the northern leg of the Keystone XL pipeline, the southern section does not cross an international border and does not require presidential approval.
In regulatory filings this week, operator TransCanada detailed the opening date for the southern leg pipeline.
“We remain focused on completing the construction, testing and commissioning for the Gulf Coast Project,” the filing with the Federal Energy Regulatory Commission stated.
“Once the line fill is completed, we will safely ramp up the flow rates of crude oil moving through the pipeline. We look forward to beginning commercial operations in the near future, and helping move oil to refineries on the U.S. Gulf Coast that have been waiting for the oil we deliver to create gasoline and other products we all rely on.”
The pipe is expected to initially transport up to 700,000 barrels per day from Cushing to the Houston area in a move likely to relieve the glut in Oklahoma.
Oil awaits trip
More than $4.1 billion worth of oil in storage tanks throughout Cushing is waiting in line for the trip to Gulf Coast refineries.
There has been some speculation that Keystone will not eliminate the glut, but that it will just move the bottleneck downstream to Houston instead of Cushing. Hume said that scenario is unlikely.
“That is one of the concerns because there is quite a bit of production in the Texas area already,” Hume said.
“But I think the concern would be for the producers on the Gulf Coast that do not have light, sweet crude, but have condensates — higher gravity oils — instead.”
There is enough refining capacity along the Gulf Coast to handle the increased supply from Oklahoma, Say said.
“There's plenty of refining capacity down there. I think it could displace some foreign oil, which is good for us,” he said.
“I think it's always good to spread out the product and not have it in one place. I welcome the additional pipeline capacity to take crude to the south.”
Oil prices also increased Wednesday even as the Organization of Petroleum Exporting Countries agreed to keep production levels constant while Iraq and Iran both pledged to significantly increase production.
“There is a tremendous amount of posturing among those countries at those meetings, so you can't put a whole lot of emphasis on what they say,” Hume said.
“It's the physical balance that's going to drive prices more than the verbiage at these meetings. When push comes to shove, I think you'll see the more sophisticated Middle Eastern countries working to manage prices.”