Keystone’s Shutdown Could Benefit Heavy Latin Crudes

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Credit: chris-pagan-unsplash
  • Keystone spilled roughly 14,000 barrels: TC Energy
  • Latin crudes set to benefit from prolonged shutdown

A recent news article published in the Platts states that keystone pipeline shutdown could benefit heavy Latin crudes the most.

Increased Canadian flows this year

A prolonged shutdown of TC Energy’s 591,000 b/d Keystone Pipeline following a spill discovered late Dec. 7 could benefit heavy crudes from Colombia and Mexico the most after increased Canadian flows this year helped push differentials to record lows.

TC Energy estimates the pipeline spilled roughly 14,000 barrels, the company said in a statement late Dec. 8. Workers have isolated the ruptured segment and the system remains shutdown as crews contain and recover the oil, the company said.

A spill of 14,000 barrels would rank it among the largest in recent spills. Keystone shut for more than 10 days due to a 9,120-barrel spill in October of 2019, according to a previous S&P Global Commodity Insights report.

The Keystone pipeline also shut for more than 10 days in November 2017, before restarted at reduced pressure following a 5,000-barrel leak detected near Amherst, South Dakota, causing the differential for WCS at Hardisty to weaken to multi-year lows.

WCS at Hardisty, Alberta, was last heard to trade at WTI CMA minus $27.85/b Dec. 9, down from $26.45/b Dec. 7, before news of the spill hit the market. On the US Gulf Coast, Cold Lake blend was last heard bid at WTI CMA minus $13/b Dec. 9, implying the differential has strengthened more than $5/b since it was assessed at minus $18.30/b Dec. 7.

The US Pipeline Hazardous & Safety Materials Administration said Dec. 8 its personnel are already on the incident site near Washington, Kansas.

S&P Global Commodity Insights assumes repairs on the pipeline will take one to two weeks. “Given storage availability, we do not anticipate an impact on Canadian crude and condensate production, which is forecast to reach highs of 5.2 million b/d in December. This is up from lows of 4.6 million b/d in May, as turnaround recoveries combine with project ramp ups and debottlenecks, alongside conventional growth. However, given strong supply, a prolonged disruption would increase downside risks,” S&P Global said in a report.

When the Keystone Pipeline shut on Nov. 16, 2018, it restarted Nov. 28 at reduced pressure under a Corrective Action Order mandated by the US Pipeline and Hazardous Materials Safety Administration.

However, prior to that, in 2010, it took several months for Enbridge to return its Line 6B after 20,000 barrels were spilled in the Talmadge Creek and Kalamazoo River in Michigan. The line went down July 26 and restarted Sep. 27.

Both the Keystone and Enbridge shutdowns pushed the price discount for WCS at Hardisty, Alberta lower. The WCS discount to WTI widened from $16.75/b on July 26, 2010 to $30.75/b on Sep. 13, 2010.

The discount widened from $14.25/b on Nov. 15, 2017, to minus $30/b by the end of January 2018.

Canadian flows to USGC

At the same time, reduced flows to the USGC benefited crudes from Latin America such as Colombia’s heavy Castilla.

The flat price for Colombia’s heavy Castilla blend rose from $50.30/b before the Nov. 16 shutdown to $57.08/b at the end of 2017. WCS at Nederland, Texas, rose from $53.19/b to $58.14/b during the same period.

The Enbridge Line 6B outage had no impact on Latin American prices in 2010, as very few Canadian barrels were making their way to the USGC at the time.

Since 2017, Canadian flows to the USGC have increased substantial, potentially magnifying the impact of an outage on competing grades. Canadian crude oil exports to the USGC fell from 549,480 b/d in October of 2017 to 527,734 b/d in November 2017, according to the Canada Energy Regulator.

This year through September, Canadian exports to the USGC have averaged 786,152 b/d, reaching as high as 963,105 b/d in May, according to the official Canadian government statistics.

Before the Keystone outage, increased Canadian crude flows had helped push Latin crudes to record low differentials.

Platts last assessed Colombia’s heavy Castilla blend at discount of $17.50/b to the Latin Brent futures strip Dec. 8, up from a record low of minus $18.90/b Nov. 28, the widest on record since January 2013. Heavy Canadian barrels on the USGC reached a record low on Oct. 17, when WCS at Nederland, Texas, widened to WTI CMA minus $21.35/b, the weakest in assessments going back to February 2016.

Increased Canadian pipeline flows to the USGC started in the fourth quarter of last year, when the Enbridge Line 3 replacement project added 370,000 b/d of takeaway capacity to the Enbridge Mainline. At the same time, a reversed Capline pipeline started shipping Canadian heavy crude from Patoka, Illinois, to St. James, Louisiana. Heavy Canadian flows on Capline, which is owned by Marathon and Plains All American, are estimated between 100,000-200,000 b/d.

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Source: Platts

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