Saturday, November 19, 2011

More pipelines reverse flow as US demand falls

A recent post covered the plan to reverse the flow of oil along the pipeline that runs sensibly from Detroit to Portland, ME (Or if you are Canadian, since it actually runs most of the way through Canada, from Sarnia to Montreal and beyond). The move is one way of distributing the increasing flows of oil that are being extracted from the oil sands of Alberta, to take advantage of existing pipelines and to meet distributed diemand.

And while the plans for the Keystone pipeline are currently on hold, there is another pipeline which is also being reversed. This is the Seaway pipeline and it runs from Freemont TX to Cushing, OK. It can carry some 400 kbd of oil, and the intent is to have to reversal completed by 2013. This will get around some of the bottleneck that has been building at Cushing, and move more crude down to the refineries along the Gulf. The hope is that it will allow domestic oil to replace some of the crude that is currently imported to those refineries, as domestic production rises to an estimate of 6.4 mbd by 2016. (With that additional rise of around 0.7 mbd from Alberta still, hopefully, coming down to the Gulf Coast as well, by 2015). It is expected that the first 150 kbd may flow by the second quarter of next year.

There are also plans to reverse the flow and increase capacity to 225 kbd with the Longhorn pipeline that runs from El Paso to Houston to carry Permian Basin oil to refineries, by 2013.

Changes planned for the Longhorn pipeline (Magellan)

As these moves are planned, it is worth noting that the demand for gasoline has been falling in the US. This is evident from the latest EIA TWIP. The fall has been as much as 500 kbd, which is significant.

Changes in U.S. gasoline demand (EIA TWIP )

It has even caught the attention of OPEC, in their latest (November) Monthly Oil Market Report, which contrasts the fall over two years, showing the drop from pre-recessionary times. (The peak was 9.6 mbd). OPEC sees overall US demand falling 0.11 mbd in 2011, and only picking up by that amount in 2012.

Fall in summer driving demand for gasoline (OPEC Nov 2011 MOMR)

In passing the MOMR also notes that Russian production of passenger cars rose 46% y-o-y, which may mean that export volumes may fall more rapidly than currently anticipated. Oil consumption in the countries of the FSU is reported at 4.2 mbd, a gain of 0.1 mbd y-o-y. (Sales of U.S. vehicles were up by 10%. ) Their current projections, recognizing the economic problems of Europe, is that world demand will grow to 89 mbd next year, with half of the 1.2 mbd increase coming from Asia, and 0.48 mbd coming from China.

Turning back to the change in driving habits in the United States, the recovery – as evidenced by vehicle miles travelled - faltered and fell back earlier this year, showing the inherent problem still resident in the U.S. economy.

Rolling 12-month average of the vehicle miles travelled on all roads in the United States, through September 2011 (FHWA )

Current declines are seasonal and see to be following the patterns of previous years.

Urban travel on US highways, by month (FHWA )

However there are reports of healthier numbers now coming out of the U.S. economy, and so hopefully, these trends will turn around.

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