A little-known pipeline could win the race to ship heavy Canadian crude oil from the Midwest to the U.S. Gulf Coast if it comes online as planned in 2015.
Called the Eastern Gulf Crude Access Pipeline Project, the 774-mile line would be capable of carrying almost as much oil as the Keystone XL, the controversial pipeline mired in its fifth year of federal review.
The Eastern Gulf would run from Patoka, Ill. to St. James, La., carrying oil from North Dakota's Bakken formation as well as Canadian oil sands crude. Both types of oil are creating a bottleneck in the Midwest, which doesn't have the refining or pipeline capacity to handle the large amounts of oil now being produced.
Bruce Bullock, who directs the Maguire Energy Institute at the SMU Cox School of Business in Dallas, said he doesn't see the Eastern Gulf pipeline as a competitor to the Keystone XL.
It's not so much "an alternative as much as it's an addition," Bullock said. "Keystone would have about a million barrels a day. This would be a little bit smaller. If you look at production forecasts in Canadian oil sands and in the Bakken, there's probably going to be room in the marketplace for both of them."
If the Obama administration approves the northern section of the Keystone, the line will run from Alberta to the Gulf Coast. Construction of the southern half, from Cushing, Okla., to the coast, will be finished by the end of the year.
The Eastern Gulf pipeline still needs various federal and state approvals, but it's expected to sail through the regulatory process with relative ease, because much of it is already built. The bulk of the pipeline—574 miles—will be repurposed from an existing natural gas line, so the project needs only 200 miles of new construction, including 40 miles from Patoka to Johnsonville, Ill., and 160 miles from Boyce to St. James, La.
The project is a joint venture between Energy Transfer Partners of Dallas, Texas, and Enbridge, Inc. of Alberta, Canada.
Enbridge is the company responsible for the largest inland oil pipeline spill in U.S. history—the 2010 accident in Michigan's Kalamazoo River, which is still being cleaned up today. It's also a major competitor of TransCanada, the company behind the Keystone XL.
The 30-inch wide Eastern Gulf pipeline would carry up to 660,000 barrels per day out of Patoka, an industrial hub of the region's refineries, storage facilities and pipelines. Energy Transfer bills the project as the "first pipeline transportation option for transportation of crude oil to the eastern Gulf Coast from the midwest U.S."
The Eastern Gulf is just one of many new pipelines designed to move North American oil to the Gulf Coast for refining and export. Enbridge plans to build thousands of miles of pipelines over the next few years, including an expansion of its Alberta Clipper pipeline from Canada to Wisconsin. If approved, that line would ship up to 880,000 barrels of Canadian crude into the United States each day, compared to the Keystone's capacity of 830,000 barrels per day.
Enbridge is also expanding its Seaway pipeline from Cushing, Okla. to Port Arthur, Texas.
Although many environmental groups oppose any expansion of oil sands pipelines, the Eastern Gulf project has attracted little attention. In June, Energy Transfer held an open house for Illinois landowners, but members of local green groups couldn't identify anyone who attended the meeting. Energy Transfer spokeswoman Vicki Granado said about 80 people showed up for the event. The company currently has no plans to hold public meetings in Louisiana.
The lack of attention for projects like the Eastern Gulf worries Carl Weimer, executive director of the watchdog organization Pipeline Safety Trust, because pipeline conversions are subject to less regulation than new pipelines.
The gas line that would be used to create the Eastern Gulf is part of a 3,000-mile system of natural gas pipelines, known as the Trunkline, which runs from the Gulf Coast to the upper Midwest. The Eastern Gulf would convert a 574-mile portion of the system into a crude oil line and reverse the flow from north to south.
Energy Transfer—whose subsidiary owns the Trunkline—has applied to the Federal Energy Regulatory Commission for permission to abandon the line. If that request is approved, the company would be free to convert the line to carry crude oil, Weimer said. Since it already has the rights to land along the Trunkline, it won't need to negotiate new agreements with landowners on that section of the route.
As part of the conversion process, the operator will build new pump stations to move the crude oil. The federal Pipeline and Hazardous Materials Safety Administration (PHMSA) will oversee that construction, as well as construction of the new pipeline sections.
But PHMSA's authority is limited, Weimer said. Operators don't need permission from PHMSA to change the contents of a pipeline, and the conversion process doesn't trigger environmental studies. Operators simply create a plan of operation that meets PHMSA's pipeline safety regulations, he said.
"There's no approval process. I don't even think they have to submit the plan to PHMSA, [though] oftentimes the companies do work with PHMSA to make sure they don't get into trouble further down the road," Weimer said.
A PHMSA spokesman confirmed that operators don't have to submit a copy of the pipeline's plan of operation, but they do need to follow PHMSA regulations that dictate the safe conversion of pipelines, the spokesman said in an email. Operators must also file an oil spill response plan for the converted pipeline.
Granado said the company hasn't decided whether it will voluntarily share its plan of operation with PHMSA. Once the line is converted, it will be subject to PHMSA inspections just like any other pipeline, she said.
Other companies have proposed their own gas-to-oil conversions.
Tallgrass Energy Partners wants to convert a natural gas line from Wyoming to Oklahoma, and TransCanada plans to ship oil sands from Alberta to eastern Canada through a natural gas line.
Line Expected to Connect to Keystone I
It's unclear how much of the oil carried by the Eastern Gulf would be Canadian or American in origin. Enbridge and Energy Transfer are soliciting commitments from interested shippers, but Granado declined to comment on specific arrangements.
The pipeline's marketing materials list six pipelines that could supply oil to the line. They include TransCanada's original Keystone pipeline, which opened in 2010 and carries oil sands crude from Alberta to Patoka and Cushing, Okla. Also on the list is Enbridge's proposed Southern Access Expansion, which would ship 300,000 barrels per day from Flanagan, Ill. to Patoka.
Getting the oil to the Gulf Coast is important, because refineries there are particularly well suited for to processing heavier crudes, said Bullock, the Maguire Energy Institute director. Some Gulf Coast refineries have a history of handling heavy crudes from Venezuela, and others have been upgraded as production increased in the oil sands. As a result, many of the Gulf refineries aren't as profitable and don't run as efficiently when they process light oil from formations such as the Texas Eagle Ford shale.
Once the oil reaches the coast, market forces will dictate how much of it is refined or exported. U.S. laws largely prevent the export of domestically produced crude oil but places no restrictions on exporting Canadian crude or refined fuels produced from domestic crude.
"It's certainly a possibility" that some of the refined products will be exported, Bullock said. "I think that's largely going to be a case of supply and demand."