Pipelines tout expansions against new projects

OREANDA-NEWS. Some new US oil pipeline projects are seeing competition from a unexpected foe — old pipelines.

Midstream companies are reassuring investors and customers that their existing pipeline systems can be expanded to compete with a handful of new projects that are being proposed.

In its earnings call this month, Sunoco Logistics highlighted the growth potential on its 200,000 b/d Permian Express 2, which would compete with a new 540,000 b/d Midland-to-Sealy, Texas, line Enterprise Products Partners has proposed out of the Permian basin.

And SemGroup, which operates the 145,000 b/d White Cliffs pipeline in the Denver Julesberg basin in Colorado, pointed to the expansion of its line to 215,000 b/d when faced with a question about competing with the 400,000 b/d Saddlehorn pipeline, a new project Plains All American Pipeline, Magellan and Anadarko are proposing.

New projects tend to be more expensive than expansions, but the willingness of companies to make the investments speaks to expectations that the recent surge in domestic oil production will be sustained.

Magellan said it is weighing a 70,000 b/d expansion of its 300,000 b/d BridgeTex pipeline, which would directly compete with Enterprise's Midland-to-Sealy project.

But the expansions of existing lines aren't just a reaction to competition, the companies say.

The Midland-to-Sealy line is "a factor that goes in the consideration" of an expansion, said Magellan chief executive Mike Mears. "But, the expansion of the system is a relatively low-cost expansion. So we believe we can offer a pretty competitive service offering through the expanded capacity."

Sunoco Logistics chief executive Michael Hennigan said the Permian Express 2 expansion was always a possibility, even before the Midland-to-Sealy project threat.

"But we size the pipe such that, you know, for relatively small investment, we can put another 200,000 bl on," Hennigan said. "We wanted to make sure the market knew we had upside potential on our PE2 project."

Sunoco's line could be doubled, and comes online this year, while Enterprise's comes on in 2017.

Canadian pipeline giant Enbridge is perhaps the king of expanding existing pipes. It is undergoing a series of expansions that will add 1.7mn b/d of new capacity in the US and Canada. A delay in TransCanada's 1.1mn b/d Energy East pipeline project to the east coast of Canada could give Enbridge time to expand its 300,000 b/d Line 9B pipeline, the eastward reversal of which is to come online this quarter.

"On the broader question around the competing pipelines and what that means for Line 9B, I think, for sure, we have some room to expand there," said Enbridge chief executive Al Monaco. "There is some additional capacity that could be brought to bear."