Plains Trains and Diluent Deals – Crude and Condensate at St. James, LA

When Plains All American began building out their terminal at St. James in 2004 the business model was based on crude imports flowing through LOOP. That had to change gears along with the market.  Since then they have developed a successful business transporting condensate to Western Canada – that is now being supplied from the Eagle Ford basin. Plains also built a crude rail unloading facility at St. James before crude by rail hit the headlines. Today we describe how Plains successfully leveraged their St. James terminal assets.

So far in this blog series we have described how six crude oil terminals are adapting to a changing supply position in the Gulf Coast region caused by increased domestic US and Canadian production. The first four episodes covered terminals in the Houston area (see ECHO, Nederland, Oiltanking and Magellan). Episodes five and six focused on the Louisiana Offshore Oil Port (see Thrown For A Loop Part 1 and Part 2). The latest episode was the first of two on the St. James, LA crude terminal – describing NuStar’s adaptation of storage there to facilitate crude by rail traffic from North Dakota (see Back to the Delta).

This time we turn our attention to Nustar’s largest rival at St. James – Plains All American Pipeline L.P. (PAA). Plains is one of the largest midstream crude oil players in the US. The company owns and operates 18,000 miles of crude and refined product pipelines. They own 120 MMBbl of crude, product and natural gas liquid (NGL) storage and terminal facilities. PAA owns gathering systems that handle over 800 Mb/d of US and Canadian crude. The company’s crude oil handling business (gathering, transportation and storage) is their largest business unit but they also have significant NGL and natural gas storage businesses. We focus our attention in this blog on PAA’s crude terminal at St. James, LA.

Note: If you did not read our NuStar blog Back to the Delta, then it is worth looking at it first to get an idea of how strategically located St. James is and to understand the crude oil pipeline connections in and out of this crude trading hub. You should at least look at the map in that blog to familiarize yourself with the logistics around St. James.

PAA began planning their St. James crude oil terminal in 2003. Between 2003 and 2007 they constructed an initial 3.5 MMbbl of crude storage followed by an additional 2.7 MMBbl started in 2008. During 2009 PAA added a Mississippi River dock that could accommodate two barges and one Suez Max tanker (see picture below) as well as 900 MBbl of condensate storage ( 3 X 300 MBbl tanks). During 2010 PAA built a rail receipt terminal with 65 Mb/d capacity. The rail receipt terminal was  expanded to 140 Mb/d during 2011. During 2012 PAA completed a further 1.2 MMBbl  liquids storage expansion for a total of 8.1 MMBbl.

Source: PAA Analyst Day Presentation (click to enlarge)

When PAA built out their crude terminal assets at St. James in the early 2000’s their business logic was based on the significant volumes of crude imports and offshore Gulf of Mexico production coming in via LOOP (see “Thrown for a LOOP Part 1 and Part 2). As the market evolved, PAA have developed and expanded their St. James terminal to align strategically with their large crude oil pipeline transportation and crude production gathering businesses in the US and Canada. That strategy has paid off in two particular areas over the past several years that we will look at in turn.

The first strategic business that PAA has developed and expanded since 2009 is shipping condensate to Canada from St. James via the Capline pipeline (PAA owns the largest percentage of Capline) to Chicago from where it is shipped on the Enbridge Southern Lights pipeline to Edmonton, AB and then on the PAA Rainbow II pipeline in the Canadian oil sands fields at Nipsi, AB (see map below). The condensate is used as a diluent to allow heavy Canadian bitumen crude to be transported by pipeline (see It’s a Bitumen Oil – Does it go Too Far?).

Source: PAA Analyst Day Presentation (click to enlarge)

Back in 2009 when PAA first installed 900 MBbl of condensate storage tanks at St. James the idea was to supply Western Canada on this route with light hydrocarbons such as condensate that would be imported at the Gulf Coast. Since then PAA has separately invested in pipeline infrastructure in the South Texas Eagle Ford basin that now delivers significant volumes of condensate and crude to its marine terminal at Corpus Christi, TX (see blogs from our Fifty Shades series  - Parts I, II, III and IV - for more on condensates). Barges or tankers qualified under Jones Act rules (see The Sea and Mr. Jones) can ship condensate from Corpus to St. James.

The map below shows the latest PAA infrastructure in the Eagle Ford. We covered these projects back in August 2012 (see Knocking on Heaven’s Door Part III) but since then Plains have added a joint venture investment with Enterprise Product Partners (EPD) that links their crude gathering system at Gardendale to the EPD crude pipeline to Houston at Lyssy. The PAA pipeline between Gardendale and Corpus Christi via Three Rivers can carry 300 Mb/d of condensate. At Corpus, PAA is building a marine terminal and dock that will allow coastal barge or tanker shipments of condensate to St. James. This project is already partially in service and will be completed by the second half of 2013. 

Source: PAA Investor Presentation (click to enlarge)

PAA can offload barges or tankers carrying condensate from Corpus at St. James. They can stage condensate for the pipeline journey to Western Canada with their 900 MBbl of condensate storage at St. James. Even though PAA do not take ownership of the condensate at any point in its long journey, they will receive fees for gathering, stabilization, transit in three of their pipelines (Gardendale to Corpus, Capline and Rainbow II) as well as terminalling fees at Corpus and St. James.

The second strategic business that PAA began building at St. James in 2010 and then accelerated at the end of 2012 is a crude by rail terminal business. PAA constructed a unit train rail unloading facility at St. James during 2010. At the same time the company was developing a crude oil gathering (truck and pipeline) system in the North Dakota Bakken oil fields (see Plains All American in the Bakken). In 2012, PAA built a rail-loading terminal in Manitou, North Dakota capable of loading 65 Mb/d onto a unit train. These assets facilitated the same business opportunity that we described in the last episode of this series for NuStar. That opportunity involves moving lower priced crude oil from North Dakota to St. James to take advantage of crude prices on the Louisiana Gulf Coast that are nearly $20/Bbl higher. We explained the reasoning behind the price differences in the NuStar blog (see Back to the Delta). In the same way as NuStar, PAA is able to leverage storage assets, pipeline and barge connectivity to local refineries by using their rail facility to unload up to 140 Mb/d of Bakken crude at St. James.

In December of last year (2012) PAA made a strategic acquisition of the assets of US Development Group (USD) for $500 M. The purchase included 4 operational rail terminals (3 loading and one unloading), with 1 additional unloading facility under development. The USD assets include a second North Dakota rail loading terminal (Van Hook, 35 Mb/d now, 65 Mb/d by 2H 2013) and a rail-loading terminal in the Eagle Ford basin at Gardendale (40 Mb/d). The two other operational terminals are in Colorado at Tampa (65 Mb/d by 2H 2013) and Carr (15 Mb/d now, 30 Mb/d by 2H 2013) and both can load crude production from the Niobrara play. The fifth USD rail terminal that PAA purchased is still being completed and will unload crude at Bakersfield, CA.

The USD assets give PAA a ready built nationwide crude loading and unloading network that feeds into their crude terminal at St. James. The current loading capacity gives PAA the capability to load 155 Mb/d of crude at terminals in the Bakken, Eagle Ford and Niobrara. By the end of 2013 that capability will expand to 265 Mb/d. PAA also has crude rail unloading facilities at its large crude terminal in Cushing, OK and is building an East Coast crude terminal with rail facilities at Yorktown, PA. Once the Bakersfield terminal is completed this will give PAA the capability to deliver by rail to East and West coast refineries as well as St. James and Cushing.

Plains All American is a very large player in the US midstream and they have significant crude oil gathering, pipeline and storage assets that we have not scratched the surface of in this brief account. However, looking at one small corner of their logistics empire – in St, James, LA we can get an idea of how they successfully integrate their assets to make themselves indispensible to any crude producer or marketer wishing to get their crude or condensate to market. In spite of their size, PAA have shown themselves to be adept at moving quickly to take advantage of the huge opportunities that the US and Canadian crude production bonanza has brought their way in the past four years.