ConocoPhillips Pipeline Sale Rattles Oil Market

A major pipeline deal is shaking up the crude oil market, and Oklahoma is caught in the middle in more ways than one.

Wednesday, November 16th 2011, 1:35 pm

By: Richard Clark

ConocoPhillips Pipeline Sale Rattles Oil Market

A major pipeline deal is shaking up the crude oil market, and Oklahoma is caught in the middle, in more ways than one.

ConocoPhillips has agreed to sell its ownership interest in the Seaway Crude Pipeline that runs from Cushing, Oklahoma to the Gulf Coast.

A Canadian company called Enbridge Inc. is buying ConocoPhillips' 50 percent interest in the Seaway Pipeline for $1.15 billion, becoming joint owner along with Enterprise Products Partners L.P.

After announcing the purchase, Enbridge and Enterprise announced that they will reverse the direction of crude oil flows in the pipeline, which means oil will flow from Cushing, Oklahoma to the Gulf Coast.

Once the deal is approved, the companies say the line could start sending crude at an initial capacity of 150,000 barrels per day by second quarter 2012.

According to the Wall Street Journal, the news pushed U.S. crude-oil futures prices past $101 a barrel for the first time since July. The Journal says the flow reversal could ease what it calls a glut of crude in the Midwest.

"The Seaway Pipeline reversal provides an early opportunity to offer Gulf Coast access to midcontinent producers and other crude oil shippers," said Patrick D. Daniel, President and Chief Executive Officer, Enbridge Inc. in a news release.

"A Seaway reversal will provide capacity to move secure, reliable supply to Texas Gulf Coast refineries, offsetting supplies of imported crude," said Daniel.

The timing of the announcement is interesting, because it comes just a week after the U.S. State Department delayed a decision on allowing construction of another pipeline to the gulf. It pushed back deciding the fate of TransCanada Corp.'s Keystone XL until early 2013.

The Keystone XL project would extend TransCanada's Keystone pipeline from Canada's oil sands all the way to the Gulf Coast.

That pipeline project has become controversial.

6/16/2011: Related Story: More Concerns Raised About Proposed Crude Oil Pipeline Through Oklahoma

Industry experts believe TransCanada will keep pushing to finish the Keystone XL pipeline. It requires State Department approval because it crosses an international border. It's also facing opposition from environmentalists and the state of Nebraska.

Charles Drevna, president of the National Petrochemical and Refiners Association, told Bloomberg last week that the oil companies are trying to solidify their supply lines. "Refineries can't wait however-many months to make decisions about where they're going to get crude," he said.

According to Bloomberg, Enbridge has enough customer commitments to build a pipeline from the Chicago area to Cushing and it already has a pipeline that stretches from Canada to Illinois.

According to its news release, Enbridge says pump station additions and modifications could push the capacity of the reversed Seaway Pipeline up to 400,000 barrels per day by early 2013.