April 28, 2016 / 6:56 PM / 4 years ago

Marathon CEO: Capline pipeline reversal likely when oil prices recover

HOUSTON (Reuters) - The nation’s largest crude pipeline likely will be reversed to move heavy Canadian crude south to Louisiana after oil prices recover from the deepest rout in a generation, Marathon Petroleum Corp Chief Executive Gary Heminger said on Thursday.

“It will probably be the latter part of this decade before that happens, but we have a great asset here that will be reversed someday,” he said in an interview after the company’s quarterly earnings call.

Marathon operates the 1.2 million barrels per day, Louisiana-to-Illinois Capline pipeline, once a major artery to deliver imports and Gulf of Mexico crude to the U.S. Midwest.

Capline’s volumes have decreased sharply as U.S. shale output boomed before prices plunged since mid-2014 on a global crude glut.

Plains All American Pipeline LP, the line’s majority owner, said in a regulatory filing that its 600,000 bpd portion of Capline moved an average of 170,000 bpd last year.

Marathon and Plains support reversing Capline to move crude to Louisiana from Illinois, but minority owner BP Plc, which relies in part on the line to supply its massive Indiana refinery, has not signed off. All three owners must agree, and have been studying a reversal for about a year.

Heminger said a reversed Capline would need to move a minimum of 500,000 bpd of Canadian heavy crude, but producers struggling with profit losses have slashed spending and deferred projects.

A reversal “is going to be commodity price driven in order to be able to get the incremental Canadian production up to speed,” he said.

He also said several planned pipeline projects would provide needed connections to move Canadian output to Capline’s northern end in the Patoka, Illinois, crude hub.

Those include Enbridge Energy Partners’ Sandpiper and Line 3 replacement projects, each targeted for startup in 2019, he said. Both will move crude to Wisconsin, where connecting pipelines reach Illinois, and Marathon is a minority partner in Sandpiper.

Multiple pipeline systems already move Canadian heavy crude through the U.S. futures hub in Cushing, Oklahoma, and then to the Texas Gulf Coast. But Louisiana refineries lack such a direct connection, Heminger noted.

“The pipeline capacity in Patoka will not be an issue. It’s just making sure we have the incremental projects in Canada to be able to produce the next barrel,” he said.

Reporting By Kristen Hays; Editing by Chizu Nomiyama

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