Crude Oil Pipeline Spending in the U.S Projected to Reach $19.9 Billion Through 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--Companies will spend an estimated $19.9 billion by year-end 2013 to expand the nation's crude-oil pipeline network. During the same period, companies processing and transporting natural gas liquids (NGLs) are expected to spend more than $6 billion on new capital projects. In both cases, the surge in spending is driven by strong global demand for oil and NGLs, as well as high prices.

Click on the image at right to view a chart showing the breakdown of crude oil pipeline spending by year.

Some of the new crude-oil pipeline projects are expected to gradually relieve the current crude-oil bottleneck at Cushing, Oklahoma, providing they can stay ahead of rapidly increasing crude-oil production from the mid-continent area, particularly the Bakken shale, according to Jesus Davis, vice president of Oil and Gas research for Industrial Info.

"The Cushing hub receives about 1.6 million barrels of crude oil per day, but outbound pipeline capacity is only about 1.3 million barrels per day," Davis told Reuters. "Having such an imbalance between inbound product and outbound pipeline capacity has created a significant price penalty for producers. Crude-oil production in North Dakota's Bakken formation is about 600,000 barrels per day now, up from basically nothing about five years ago, and production is on track to double to about 1.3 million barrels per day by about 2015."

The $19.9 billion that is scheduled to be spent on crude-oil pipelines during 2012-2013 surpasses the $16.6 billion the industry spent on crude-oil pipelines from 2005 through 2011, Industrial Info said. One of those projects scheduled to kick off this year is the southern leg of what used to be known as the Keystone XL pipeline. This leg, severed from the controversial project originating in Canada, will run from Cushing, Oklahoma, to refineries on the Texas Gulf Coast. Named the Gulf Coast Project, this $2.3 billion pipeline will be able to transport up to 500,000 barrels of crude oil per day (BBL/d) when it commences operations next year.

More immediately, the flow of crude oil in an existing pipeline, Seaway, is being reversed so that crude oil can flow from Cushing to Port Arthur, Texas, according to data tracked by Industrial Info. That reversal, capable of transporting up to 150,000 BBL/d of crude, is scheduled to be completed in a few weeks. A second pipeline, a twin of the existing Seaway, will add another 450,000 BBL/d of Cushing-to-Texas capacity, but it is not scheduled to come online until mid-2014.

"Right now, it's kind of a race to see whether planned pipeline projects keep up with surging production in the Midcontinent region," noted Davis. "The dramatic surge in crude-oil production from the Bakken formation has put the industry behind the 8-ball."

Turning to capital spending on U.S. NGL pipelines, Industrial Info is tracking a similarly dramatic surge in scheduled spending during 2012-2013 compared to earlier years. The $6.5 billion that NGL companies plan to spend during that time is roughly triple what the industry spend on those projects from 2005-2011.

"We're seeing a sharp increase in NGL pipeline spending scheduled to take place this year, as several shale formations, particularly the Eagle Ford, contain a high percentage of NGLs," said the Industrial Info vice president. "A lot of that increased production is targeted for overseas markets--but whether those markets will continue to have a high demand for NGLs depends on a variety of macro-economic factors, including whether Europe's economies continue to experience soft or negative growth."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.