Shell Pipeline Deal With Locap Adds Rate Certainty; Sunoco Adds Access

Shell Pipeline Deal With Locap Adds Rate Certainty; Sunoco Adds Access

Gregory Morris
Aug 19, 2016
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Zydeco Pipeline Co., jointly owned by Shell Pipeline Co. and Shell Midstream Partners, recently filed two separate joint tariffs, one with the Locap system and the other with Sunoco Logistics. The Locap arrangement does not create any new capacity per se, but moving current volumes from one line to another adds route and thus rate certainty for some shippers.

The Sunoco deal expands the relationship between Shell’s midstream operations and Sunoco by adding access to Sunoco’s Nederland, Texas, terminal.

Zydeco and Locap filed a joint tariff that will allow for movement of Poseidon crude from Houma, La., to St. James, La., beginning Sept. 1 through Zydeco’s 24-inch line into Locap’s 48-inch main oil line.

According to the Zydeco announcement, moving Poseidon via Locap will free an additional 100,000 barrels per day (bbl/d) to 140,000 bbl/d of capacity for Zydeco’s shippers on the Houma-to-St. James 18-inch line, while enabling the Poseidon shippers to ship under the joint tariff at the same rate structure as the existing 18-inch line.

A Shell representative elaborated: “Shifting the Poseidon volumes on this joint tariff allows for the Poseidon volumes to access St. James at the same rate structure as moving from Houma to St. James on our 18-inch line. That shift also opens capacity on the 18-inch from Houma to St. James because the Poseidon barrels are moved onto the joint tariff.”

Shell added that, “Shippers gain two things. First Poseidon shippers get all their volume to St. James via the joint tariff at the same rate. And second, non-Poseidon shippers now have additional space available on the Houma to St. James 18-inch that was historically occupied by Poseidon crude. Previously, shippers that were prorated off of the Zydeco 18-inch could travel this same route as the joint tariff but at a much higher rate.”

An industry source familiar with the U.S. Gulf Coast pipeline system told Downstream Business.com (DSB) that the 18-inch line is full or near-full on a regular basis, pushing some shipments onto the 24-inch line. Because shippers pay different tariffs on the different lines, reducing the legs that crude has to move and giving route certainly allows shippers to have certainty on transportation costs. There may or may not be a savings, but at a time of low prices, fixing costs eases budget concerns.

Broadly speaking, midstream operators have indicated they are eager to rationalize and optimize their networks to improve speed and reliability and possibly create incremental capacity.

Shell confirmed that they are “using existing infrastructure that has available capacity. This is a broader effort by pipelines to debottleneck the route from Houma to Saint James. It provides additional capacity at the same all-in cost of traveling on the Zydeco 18-inch without having to lay any new pipe or make any modifications to the line.”

Separately, Zydeco and Sunoco also filed a joint tariff to open a connection from Sunoco’s Nederland, Texas, Terminal into Zydeco pipeline at Port Neches, Texas. This will allow additional capacity to be available to shippers on Sept. 1. Nederland has 25 million bbl of crude storage.  

A Sunoco representative told DSB, “We have worked with Shell before. We are partners with Shell in joint venture pipelines, including Explorer and West Shore. We are connected to most major crude pipelines and Mt. Belvieu and the Strategic Petroleum Reserve, and we have crude export capability at Nederland as well.”

Shell added that the relationship with Sunoco “was formed when Shell reversed the pipeline. That project has just been completed. This connection is the final expansion phase from the reversal. Along with the additional tanks at Port Neches, completed earlier, this makes the mainline capacity of the 22-inch line from Port Neches to Houma 375,000 bbl/d.”

Zydeco’s system runs from Houston to market hubs in St. James and Clovelly, La. It provides U.S. Gulf Coast refineries and terminals with access to light crude production arriving in the Houston market from the Eagle Ford Shale, Permian Basin, Bakken Shale and to offshore production landing in Houma.

Locap transports crude from Clovelly through a 54-mile, 48-inch pipeline to the company’s St. James Terminal and other destinations in St. James where the company handles further distribution to a large number of refineries via connecting systems.

 

Gregory Morris can be reached at gmorris@hartenergy.com.