Plains All American Pipeline LP is building a new pipeline to bring oil from an increasingly fruitful West Texas field to the Corpus Christi and Houston refining markets, the company said Monday.
The pipeline, called the Cactus pipeline, is expected to start shipping up to 200,000 barrels of day of oil in the first quarter of 2015. It would be the latest venture allowing oil producers in West Texas' Permian Basin to send their crude directly to the U.S. Gulf Coast refining belt.
Plains expects the 310-mile pipeline, with an expected cost of up to $375 million, to carry sweet and sour crude to Texas coast. By avoiding the oil transport hub in Cushing, Okla., producers hope to avoid the glut there that has helped depress prices on oil from Cushing.
Plains said it has entered into a letter of intent with a third party regarding a long-term commitment for a majority of the Cactus pipeline's capacity and is in discussions with several potential shippers for the remaining capacity. The pipeline company did not identify the company which has made the commitment or the companies with which Plains has had negotiations.
Several companies have been attracted by the idea of delivering West Texas crude directly to the refineries that dot the U.S. coast of Gulf of Mexico. Sunoco Logistics Partners started shipping such crudes to the Houston area on its Permian Express pipeline in the first quarter. Around the same time, Magellan Midstream Partners LP (MMP) reversed its Longhorn Express pipeline to ship crude from the Permian Basin to Houston.
Plains noted that crude oil delivered through the Cactus pipeline will have access to rail-loading capacity at the Gardendale, Texas, station operated by Plains All American and access to the Eagle Ford barge-dock facility in the Corpus Christi area.
The pipeline company added that the Cactus pipeline capacity can be increased as demand warrants.
Plains has experienced strong demand as it benefits from a huge boost in the U.S. supply of onshore oil.
The company, which transports, stores and sells oil, receives fees for many of its services, so it is less affected by the volatility of oil and gas prices.
Copyright (c) 2012 Dow Jones & Company, Inc.
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