Valero oil refinery to link to Cushing hub soon

Tue Oct 5, 2010 12:49pm EDT

Related Topics

* Eagle North pipeline to link Valero refinery to Cushing

* Capacity may exceed 30,000 bpd -Reuters estimate

* Added offtake capacity at Cushing could boost WTI prices

By Robert Campbell

NEW YORK, Oct 5 (Reuters) - A Valero refinery in Ardmore, Oklahoma will soon be able to begin tapping into cheap crude oil at the giant Cushing, Oklahoma storage hub, possibly easing a bottleneck that has distorted benchmark U.S. oil prices for years.

Blueknight Energy Partners LP BKEP.PK expects to complete its Eagle North pipeline reactivation project in the fourth quarter, connecting Valero Energy Corp's (VLO.N) Ardmore refinery with Cushing for the first time, a Blueknight spokesman said.

The partnership, controlled by global oil trading giant Vitol [VITOLV.UL], declined to discuss the capacity or expected throughput of the pipeline, citing competitive concerns and regulatory constraints.

An industry rule of thumb suggests the 8-inch pipeline could carry up to 32,000 barrels per day of crude oil, according to Reuters calculations.

U.S. West Texas Intermediate crude oil futures CLc1, which have their delivery point at Cushing, have often traded at a substantial discount North Sea Brent due to a shortage of outbound pipeline capacity at Cushing.

The 90,000 bpd Ardmore refinery currently runs crude oil produced in Oklahoma as well as oil brought up from the coast of the Gulf of Mexico, Valero spokesman Bill Day said.

"Anything that boosts offtake from Cushing will likely have an impact on the pricing structure of WTI but I'm not sure a 30,000 bpd line will offset the impact of all the Canadian barrels coming in," said one U.S. crude oil trader.

Growing Canadian oil production and the reversal of pipelines that once carried West Texas and Oklahoma crude oil to the upper Midwest have been blamed for the glut at Cushing.

Any relief brought by Eagle North may be short-lived, however, as new inbound pipeline connections to Cushing are under construction and a proposed major outbound link announced on Tuesday by Enbridge Inc (ENB.TO) (ENB.N) is probably years away from beginning operations. [ID:nN05183843]

An extension of TransCanada Corp's (TRP.TO) Keystone pipeline to Cushing is due to start operations in early 2011.

The Eagle North pipeline reactivation has been on hold for several years due to the bankruptcy of SemGroup L.P., which previously controlled Blueknight.

Vitol is helping to fund the project by prepaying $5.5 million in shipping fees on the pipeline under a throughput agreement, Blueknight said in a filing with securities regulators last month.

(Editing by David Gregorio)

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