April 2011 Vol. 238 No. 4

Projects

Enterprise And Energy Transfer Join To Develop Crude Pipeline From Cushing To Gulf Coast, Service Expected In 2012

Enterprise Products Partners L.P. and Energy Transfer Partners, L.P. announced April 26 that they have agreed to form a 50/50 joint venture to design and construct a crude oil pipeline from Cushing, Oklahoma to Houston.

The project would allow greater access to the United States Gulf Coast-area refining complex and add approximately 500,000 barrels of storage capacity at new facilities to be constructed and owned by the joint venture at Enterprise’s new Houston crude oil terminal. The pipeline would provide an outlet for more than 400,000 barrels per day of crude oil supplies that are currently stranded at the Cushing hub and priced at a substantial discount to imported crude oil on the Gulf Coast. The pipeline would also give refiners on the Gulf Coast improved access to growing supplies of domestic crude oil production and an alternative to higher priced crude oil imports, which represent their largest source of supply.

U.S. Midcontinent crude oil supplies have been growing rapidly and are expected to continue to grow with the development of shale plays and increasing Canadian crude oil production. These supplies are accumulating in Cushing, which lacks southbound pipeline capacity to the largest U.S. crude oil market on the Gulf Coast. The glut of crude oil supplies in Cushing has resulted in Cushing barrels trading at a substantial discount to the price of crude oil on the Gulf Coast, most of which is imported by ship from foreign producers. Over the past three months, Cushing crude oil (West Texas Intermediate) has been trading at an average discount of approximately $12.57 per barrel and $10.54 per barrel to Louisiana Light Sweet and Brent crude oil, respectively.

Utilizing new and existing pipelines, the 584-mile project would originate at Enterprise’s 3.1 million barrel crude oil storage facility in Cushing. Enterprise and Energy Transfer would each contribute existing assets to the joint venture, including Energy Transfer’s 240-mile, 24-inch diameter natural gas pipeline in East Texas, which would comprise approximately 40 percent of the proposed system. By utilizing infrastructure already in place and following existing pipeline right-of-ways for the 354 miles of new construction, the joint venture partners expect the pipeline to be in service much sooner than laying new pipe only. The terminus of the pipeline would be at Enterprise’s ECHO crude oil storage and terminal facility in southeast Harris County, Texas. The ECHO crude oil terminal would offer access to major Texas Gulf Coast refining centers in Texas City, Pasadena/Deer Park, Baytown and on the Houston Ship Channel.

Subject to sufficient commitments from shippers and the required regulatory approvals, the new pipeline is expected to begin service in the fourth quarter of 2012. The joint venture partners would share commercial responsibilities, with an Integrated Project Team responsible for construction of the pipeline and Enterprise serving as operator.

Both companies expressed pleasure with the agreement. Michael A. Creel, president and chief executive officer of Enterprise’s general partner, said that he expected to have “firm, long-term commitments in place for the available capacity” within 60 days.