RPT-Oil flow from US Midwest surged, huge EIA revision seen

Fri Dec 3, 2010 9:57am EST

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(Repeating story from Thursday)

* EIA to sharply revise southbound pipeline flow volumes

* Flow may be near 150,000 bpd, triple previous estimates

* Some Exxon flow may have been omitted from EIA data

* Errors in flow data may go back to 2009-EIA

* Data may show less Midwest glut, change market outlook

(Recasts, adds EIA comment, graphic link.)

By Joshua Schneyer and Bruce Nichols

NEW YORK, Dec 2 (Reuters) - Far greater volumes of crude oil than previously reported have flowed this year from the U.S. Midwest into the Gulf Coast states, which will lead to a large revision in U.S. Energy Information Administration data, an EIA official told Reuters.

The data gap -- of perhaps 100,000 barrels per day (bpd) -- is small in the U.S. market that consumes around 19 million barrels a day, but could have a significant impact on oil markets.

For analysts and economists who use EIA's data to model supply and demand in diverse U.S. regions, a revision could indicate more Canadian crude flowing south to the Gulf Coast refining hub and fewer potential gluts in the key Midwest region, where U.S. oil futures are delivered.

It could also raise more questions over the accuracy and survey methods of the EIA, which has been under fire this year over its energy data, or about whether companies including Exxon Mobil (XOM.N) have met strict reporting requirements.

The EIA discovered it was working with incomplete data this year and potentially in 2009, and will sharply revise upward the figures, said EIA statistician Michael Conner.

"There will be a large and very visible revision of our data" on pipeline flows from the Midwest, PADD 2, to the Gulf Coast states, PADD 3, Conner told Reuters.

The flows for most of this year so far were vastly under-stated in EIA data. It's not yet clear when the revision will occur. EIA often waits for an annual report in June, but the data may be corrected earlier, Conner said.

Revision may show that volumes of crude piped south from the Midwest have been up to several times greater than EIA data suggests.

An EIA report this week showed a radical, recent spike in pipeline shipments from the Midwest, or PADD 2, to the southern Gulf Coast states, or PADD 3, raising eyebrows among oil analysts since little crude was thought to be flowing south, although large volumes usually flow north.

In September, 151,000 bpd flowed south between the two regions on pipelines, EIA data shows, or more than triple the average flow of 45,000 bpd in the first eight months of 2010. The September flows were 47 percent higher than a previous monthly record in 1994.

(Graphic on pipeline flows: r.reuters.com/dyj38q)

Pipeline flows throughout 2010 have been "close to, or much closer to" the record high levels recorded in September, Conner said.

He couldn't offer precise figures since the agency is still poring over pipeline data. He declined to say which pipeline flows weren't fully accounted for in EIA's existing figures, or whether oil companies had failed to report volumes, which is required by law.

OIL COMPANIES QUESTIONED

The EIA detected potential anomalies in the flow data and "started asking questions" of pipeline operators earlier this year, Conner said.

The huge discrepancy may stem in part from EIA's omission of pipeline flows on lines owned by oil giant Exxon, according to a source familiar with the matter, although flows on other pipelines may also be involved.

"We are talking to EIA now to verify our report data," Exxon spokesman Kevin Allexon said in an email response to questions on Thursday.

Exxon's Pegasus line, an 858-mile (1,381-km) pipeline, was the first between the PADD 2 and PADD 3 regions to be reversed to transport crude flows south instead of north, starting in 2006. The line's capacity was expanded by at least 50 percent last year, to a current 96,000 bpd, Allexon said.

He declined to say whether Pegasus flows had been accurately reported by the EIA, or if any additional Exxon pipeline flows between the regions may have gone undetected by the EIA.

Other lines also flow between the PADDs, including two owned by ConocoPhillips (COP.N) that go from Oklahoma to Texas. Conoco declined to comment immediately.

Occidental's (OXY.N) Centurion pipeline also flows from Cushing in PADD 2 toward West Texas, in PADD 3, after the 60,000 bpd line had its flow direction reversed. A company spokesman said he couldn't immediately comment.

MARKET IMPACT

If average volumes were near September's high levels, that means around a million barrels a week may have been traveling south from the Midwest, compared with previous estimates of just 315,000 barrels a week on average through August.

Northbound pipeline flows from PADD 3 to PADD 2 are still far higher, or around 1.3 million bpd in September. But those volumes are almost 50 percent lower than peak levels in 2000.

U.S. oil futures are delivered to Cushing, Oklahoma, in PADD 2, and prices there serve as a major world benchmark. Supply gluts and pipeline bottlenecks in the area have placed pressure on U.S. oil prices since 2008, hitting U.S. oil futures for near-term delivery hardest.

U.S. oil futures for delivery at Cushing in January CLc1 were up $1.25 a barrel at $88 on Thursday, or 42 cents cheaper than February barrels. CL-1=R

The bigger flows may indicate PADD 3 demand is greater than once thought, and show higher volumes of Canadian crude are rushing through PADD 2 to Gulf Coast states, site of the largest U.S. refining complex.

New north-to-south running pipelines are planned, which in coming years could ship more than 2 million bpd of crude pumped in from Canada all the way to the Gulf Coast. PADD 2 oil output is also rising, after production soared 20-fold in North Dakota's Bakken Shale in recent years. (Editing by Marguerita Choy)

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