An outage on a major pipeline from the largest oil hub in the United States would normally send shockwaves through crude markets, but that has not happened this week as Enterprise Products Partners’ 400,000-barrel-per-day (bpd) Seaway pipeline enters its second day offline.
That is because shipping capacity on the route from Cushing, Oklahoma to the U.S. Gulf Coast has roughly tripled over the last three years as midstream companies raced to expand for the North American shale oil boom only to see it disappear.
Even with no clear timeline for a restart of the pipeline or scope of the damage, the response from both physical and futures markets has been muted. On Tuesday, the discount for prompt futures relative to the second month rebounded slightly from Monday’s lows, trading at 62 cents per barrel.
Enterprise took the 850,000 bpd Seaway Crude system out of service after one of the lines suffered a leak late Sunday night. The company restarted on Monday afternoon the 450,000 bpd Twin, which opened in 2014 and runs parallel to the legacy line. It was not impacted by the spill.
“The market is not spooked by the Enterprise closure, so there must be adequate capacity on Seaway 2 to handle existing flows,” said Sandy Fielden, director of commodities and energy research for Morningstar.
Oil traders say there is ample capacity to move oil to Port Arthur, Texas or Houston on TransCanada’s 700,000 bpd Marketlink line, which opened in 2013.
To make spot shipments on Marketlink viable, West Texas Intermediate at Cushing will either need to soften or crude prices at Nederland and Houston will need to firm, said Dominic Haywood, an oil analyst with Energy Aspects.
For uncommitted shippers, it costs $2.50 per barrel to move light crude from Cushing to Port Arthur or Houston, Texas, on the Marketlink pipeline. This week, WTI at Houston was pegged around a $1.05 a barrel premium to WTI at Cushing, a level that hardly justifies the cost of shipping.
Lack of reaction in the physical oil markets may also be an indication of ample supply on the Gulf Coast, as oil refineries undergo seasonal maintenance.
It is “not really impacting the Brent/WTI spread and the WTI Houston premium is still lower than Light Louisiana Sweet (LLS), suggesting there is no particular shortage at Houston,” Fielden said.