UPDATE 2-Kinder Morgan launches open season on crude pipeline

Tue Apr 2, 2013 4:58pm EDT

Related Topics

* Pipeline would carry cheaper Texas crude to California

* Construction would start 2015 with 2016 startup

* Project could potentially cost $2 billion

By Kristen Hays

HOUSTON, April 2 (Reuters) - Kinder Morgan Energy Partners LP launched a binding open season on Tuesday to gauge shipper interest in a pipeline that would move cheap U.S. crude from Texas to import-dependent California refineries.

Dubbed the Freedom Pipeline, the project would involve converting a 740-mile (1,191 km) natural gas pipeline to move crude oil from the Permian Basin, as well as construction of new pipelines and pumping stations.

In January, Kinder Morgan Chief Executive Richard Kinder told analysts the potentially $2 billion project could move up to 400,000 barrels per day, but would be profitable at 250,000 bpd.

On Tuesday, the company said it would have an initial capacity of 277,000 bpd.

Bill Day, a spokesman for Valero Energy Corp, the nation's largest independent refiner, said the company is interested in bringing low-cost crude to California. Valero operates refineries in the Los Angeles and San Francisco areas.

"We like different options to do that," he said, whether it be crude via pipeline, rail or ship. He declined to comment specifically on Kinder Morgan's plans.

California is the last region in the United States to gain access to cheaper inland crude oil from prolific shale and tight oil plays that already have increased profitability for refiners elsewhere.

There are no major pipelines that carry crude west over the Rocky Mountains, leaving California dependent on expensive imports and declining output from the state and Alaska.

Some California refiners want to tap the cheaper inland output by rail, or offload it from ships or barges that take loads from trains that deliver it to the west coasts of Canada or Washington State.

Alon Energy USA Inc shut down its 84,500 bpd Southern California refining system last fall for at least a year as it awaits permits to build an offloading facility that can receive crude by rail.

Valero also is seeking a permit to build a similar facility that could take to 70,000 bpd of inland U.S. and Canadian crude via rail.

2016 STARTUP

Pending needed shipper interest and regulatory approvals, Kinder Morgan would begin construction by June 2015 with startup set for the latter part of the fourth quarter of 2016, the company said.

In addition to converting the 740-mile natural gas pipeline to move crude, Kinder Morgan would build 22 miles (35.4 km) of new pipeline for interconnections in Southern California and 200 miles (321.9 km)of pipeline between Wink and El Paso in West Texas.

The company also would build tank facilities in the receipt area of Wink and Midland, Texas, and at delivery points in California.

The entire system would stretch 1,025 miles (1,649 km).

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