Buckeye Partners is not going ahead with its planned Permian-to-US Gulf Coast crude pipeline, and is instead investing in Corpus Christi marine and storage facilities, CEO Clark Smith said Friday.
Effective April 30, open season for the 600,000 b/d South Texas Gateway pipeline has been terminated, Smith said on an earnings call.
In late 2017, Buckeye launched an open season for a 30-inch pipeline that would run from the Permian Basin and nearby Gardendale to the two export destinations at Corpus Christi and the Houston Ship Channel.
The project was due to start up in 2020.
Buckeye has instead decided to focus on its South Texas Gateway Terminal, for which the company estimates its share of investment to be $150 million to $170 million, Smith said.
"We will build two docks capable of loading Suezmax and VLCC [vessels], along with 3.4 million barrels of crude storage and connectivity to an export pipeline," he said. "This will be the initial scope of our project and it is already contracted. We are also in talks with several other customers to ink new deals that will give us the option to increase storage to 10 million barrels."
In late April, Buckeye unveiled plans for its South Texas Gateway Terminal project, located on a new deep-water marine terminal at Ingleside on the 36-mile main ship channel serving the Port of Corpus Christi.
The terminal will be built on a 212-acre waterfront parcel at the mouth of Corpus Christi Bay and serve as a primary outlet for the 700,000 b/d Gary Oak pipeline that will deliver crude oil and condensate from the Permian Basin. Buckeye would own a 50% interest in the facility and also be the operator with Phillips 66 and Andeavor, each of which will own 25%. The initial phase of the facility will start commercial operations in end 2019, Buckeye said then.
"The planned dredging of the Corpus Christi main channel will also improve the economics of crude exports from the US Gulf Coast," Smith said Friday, without giving any figure.
The US Army Corps of Engineers is due to start work in June on a dredging program to deepen the main ship channel to 54 feet from the current 45 feet and also expand the width of the channel entrance at Ingleside and Corpus Christi to 530 feet from 500 feet and 400 feet, respectively, the Port of Corpus Christi has said.
STRATEGIC SHIFT
A lack of pipeline takeaway capacity has deepened price discounts for Permian crudes, and drawn attention for the need to build new pipelines. Permian production is fast ramping up, projected by S&P Global Platts Analytics to grow at 100,000 b/d each month for 2018.
Still, Buckeye is the second midstream player to have recently pulled the plug on Permian pipeline plans. In mid-April, Magellan Midstream Partners said it was holding plans to build a 350,000-b/d pipeline and shifting its attention to waterfront assets at Corpus Christi.
Lots of pipelines have been proposed from the Permian and this was putting pressure on midstream players to make their pipeline tariffs competitive, Magellan's senior vice president for commercial crude oil, Robb Barnes, said at the time, noting such a scenario led "us to believe we could spend our money more wisely elsewhere."
Likewise, Buckeye is reducing the financial risk of building a pipeline and remaining focused on its core areas of strength.
Buckeye is a strong terminal player and already has a condensate splitter and a terminal facility at Corpus Christi, said Sandy Fielden, analyst with Morning Star.
The addition of a large export terminal will boost Buckeye's footprint at Corpus Christi for future exports, Fielden said.
Buckeye - and its partner Trafigura - announced last month the first shipment of crude onboard a Suezmax tanker from the Buckeye Texas Hub terminal at Corpus Christi after carrying out modifications at that facility.
