(Reuters) - TexStar Midstream Services, LLC is enthusiastic that shippers will commit to space on its pipeline carrying Eagle Ford shale liquids down to the U.S. Gulf Coast during the open season launched Monday.
The pipeline is expected to be the first online of several projects to tap the prolific light, sweet Eagle Ford shale oil formation to make the connection between the field and the heavy concentration of refineries along the U.S. Gulf Coast, replacing more expensive crude imports.
TexStar is building and will operate a 110 mile pipeline from Gardendale, Texas capable of carrying 100,000 barrels per day of crude and condensates out of the prolific Eagle Ford Shale formation in south Texas to Oakville, Texas, just east of Valero Energy’s (VLO.N) 93,000 bpd Three Rivers refinery.
From there, TexStar will lease a portion of pipeline from NuStar Logistics to carry the crude down to NuStar’s North Beach terminal in Corpus Christi, Texas.
“We will be the first pipeline to get healthy volumes down to the water,” said Joe Monroe, head of commercial development at privately-held TexStar.
TexStar’s line is expected to come on line by the summer of 2012.
TexStar is competing with other pipelines including Enterprise Product Partners’ 200,000 bpd pipeline. That project, anchored by 100,000 barrels per day of firm commitment by Chesapeake Energy (CHK.N), will not be complete until the middle of 2013 when the 220 mile line will reach Enterprise’s ECHO crude oil storage along the Houston Ship Channel.
Monroe said once the oil carried in the TexStar pipeline reaches the port of Corpus Christi, it will be able to be loaded on an ocean-going barge which can carry between 100,000 to 150,000 barrels or small ship carrying 300,000 barrels and sent up along the coast to Houston’s refinery row.
The expected terminus will eventually ending up further east along the Gulf Coast at the oil hub of St. James, Louisiana.
Monroe said that TexStar expects to get enough firm commitment for five years of transportation to make the project work as production from the Eagle Ford is expected to rise from about 200,000 bpd now to as much as a million bpd in 2016.
“There is incentive for shippers. We also expect to have walk-up shippers paying a walk-up tariff, which is a fairly common strategy,” said Monroe.
TexStar’s project is not reliant on the shipping commitments for finance as it is owned by a fund, said Monroe. In June 2009, Houston-based EIG Global Energy partners formed a new entity to buy West Texas gathering system asset which comprise TexStar.
Eagle Ford Shale is valued because it contains crude oil and natural gas that is rich in liquids as well as its south Texas easily accessible to Gulf Coast refineries.
But over the past decade or so, many Gulf Coast refiners have opted to add complexity to their refineries by building cokers and hydrotreaters to process heavy, sour crudes, limiting the amount of light sweet crude they can run.
So very light, very sweet Eagle Ford could conceivably end up on the East Coast being run in Pennsylvania’s light, sweet refineries currently in danger of shutdown because of paying for expensive, European priced crude.
Eagle Ford is generally sold by long-term contract based on U.S. benchmark West Texas Intermediate , and it trades at a discount to imported sweet crudes like Nigerian Bonny Light and Algeria’s Saharan Blend which are priced off of more expensive North Sea Brent benchmark.
“Eagle Ford will go where the market wants it,” said Monroe.
Monroe says he sees the Eagle Ford, the Bakken and other domestic shale oil plays backing out the light, sweet imports from outside the U.S. and Canada but doesn’t see the U.S. turning back into an exporter of crude anytime soon.
“It will make a major dent in crude imports into the United States but we will never go long crude,” he said.
(Reporting By Janet McGurty; Editing by David Gregorio)
This story was corrected in paragraph 3 to change the length of pipelines