Enterprise Products Partners' decision to abandon a joint venture to build a 584-mile-long crude pipeline from Cushing, Oklahoma, to Houston came as a surprise, traders said Monday.
Enterprise Friday said it would not pursue a planned joint venture with Energy Transfer Partners to build the line. Enterprise said it generated significant interest, but there were not enough agreements in place to commercially support the project.
Enterprise also said it was committed to developing a crude line from Cushing to the Gulf Coast, and that it would continue to work with potential shippers to secure support. Enterprise spokesman Rick Rainey said if the company pursues a Cushing-Gulf Coast line, it would be a completely separate project.
A spokeswoman for Energy Transfer Partners was not immediately available for comment Monday.
Market sources said there may have been too many competing projects designed to get crude from the Cushing storage hub to refineries on the Gulf Coast.
"I think there are so many options, that no one wants to commit," one market source said Monday.
Several projects to link Cushing to the US Gulf Coast are in various stages of planning. TransCanada's Cushing Marketlink Project, part of the company's Keystone XL pipeline, is expected to begin shipping crude to Port Arthur, Texas, in mid-2013 and to Houston in 2014, pending the receipt of a US presidential permit for the line to cross the US-Canada border. That application is pending with the US State Department.
In addition, Enbridge is developing the Monarch line to bring crude from Chicago to Houston via Cushing. Enbridge has said the project could come on stream by late 2013, including a northern leg of 200,000-300,000 b/d from Chicago to Cushing and a southern leg from Cushing to Houston.
"We don't need three pipelines," on trader said Monday.
Also, ConocoPhillips said in April it would consider reversing the Texas-to-Oklahoma flow of its Seaway Pipeline, a 50-50 joint venture with Enterprise. Separately, Magellan earlier this month floated the idea of another Cushing-to-Gulf Coast oil pipeline, saying it was in talks with potential customers.
Gulf Coast crude grades are trading at premiums of more than $20/barrel to West Texas Intermediate. On Friday, Mars crude was assessed at a record of cash WTI plus $22.75/b, according to Platts data. The Brent/WTI spread was pegged at $23.97/b at 1:20 p.m. CDT Monday.
One market source said those differentials may not be sustainable.
"Something's got to be done," he said.
Andy Lipow of Lipow Oil Associates said the canceled project means the wide spread between WTI and Gulf Coast grades will continue to boost margins for Midwest refiners.
"If you look at the other side, the Midcontinent refiners will continue to benefit from this disparity... throughout 2013," he said.
Lipow said the Enterprise's announcement means there will be a lot more focus on TransCanada's Keystone XL project.
