Reverse Capline Service and What it Means

Reverse Capline Service and What it Means

Capline, an oil pipeline, was once a major route for the movement of oil imported through the Gulf of Mexico and headed for the midwest. Work now underway will allow for the reversal of that movement, bringing oil to the Gulf for refinery or for export. It now seems likely that the Reverse Capline will be in service by September 2020.

We should pause for a closer look: this reversal goes to the heart of the transformation of the O&G industry in North America in recent years.

Between well stimulation techniques and geological discoveries, and with the benefit of shifts in regulatory winds in both the United States and Canada, North America’s productivity has moved far away from the Gulf of Mexico. Meanwhile, the Louisiana Offshore Oil Port (LOOP), a facility built three decades ago to facilitate bringing foreign crude oil into the US, has become an export platform as well, devoting one of its eight storage caverns to this purpose.

The Reversed Flow of Oil

The existing Capline pipe extends from St. James, La to Patoka, Il. For a long time it took oil, up to 1.2 million barrels a day, north on a 631 mile route paralleling the Mississippi.

But by the spring of 2017 Capline’s glory days seemed behind it. Analysts at Tudor Pickering Holt observed that it was moving less than one-third of its capacity, 360k barrels per day, and they suggested that it be idled “as redundant pipeline capacity.” Plains All American LP (NYSE: PAA) , the majority owner, suggested the same, in a presentation to its investors on May 24 that year.

But it isn’t redundant if the direction is to be reversed! There are two reasons for oil to head toward the Gulf of Mexico along the Mississippi. On the one hand, the Gulf is where the refineries are. On the other hand, it’s also where the port facilities are. Of course, these two reasons are not mutually exclusive: oil can be exported either as crude or  as a refined petroleum product. Or again, it can be refined and sold to consumers in the domestic market.

The Terminus of Keystone

One of the pressing issues of the North American O&G industry is: the limited takeaway pipeline capacity of western Canada’s bountiful heavy oil, and how best to get it to markets. The heavier crudes coming from Canada are the sort for which there is a strong US demand, so much of that will be refined and consumed in the US. Though reversing flow on Capline is not simple matter, it will contribute to accomplishing that task, and it seems on its face attractive in contrast to creating new pipelines from scratch.

The plan is for the line to start with light sweet crudes from the Bakken Shale, though it is the heavy oil that is the eventual prize warranting the reversal. After all, Patoka is the terminus of Keystone.

Al Monaco, the CEO of the Canadian pipeline giant, Enbridge Inc. has expressed keen interest in partnering Enbridge’s system with the Reverse Capline to allow a path to the Gulf for the crude that comes out of the oil sands.

Repurposing of the line is an important piece in the bigger picture, illustrating as one optimist wrote recently that the United States is becoming “a dominant global oil exporter, further changing the dynamics of the worldwide oil industry.” 

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