(Reuters) - Enbridge Inc (ENB.TO) and Enterprise Products Partners LP (EPD.N) will more than double the capacity of the Seaway Pipeline, easing a major oil glut in the United States that has led to an unprecedented distortion in crude markets.
The expansion would add 450,000 barrels per day (bpd) of capacity to the Seaway system, raising its capacity to 850,000 bpd by mid-2014, Enbridge said in a statement.
The company also plans to increase the size of its Flanagan South Pipeline from Flanagan, Illinois to Cushing, Oklahoma, to a 36-inch diameter line with an initial capacity of 585,000 bpd.
The estimated cost on the Flanagan line would increase to $2.8 billion from $1.9 billion. Enbridge’s share of the cost of the Seaway pipeline twin line and extension is expected to be about $1 billion.
The companies are racing to unlock a glut of crude in the U.S. Midwest, which has built up over the year due to rising supplies from Canada and North Dakota.
The ballooning inventories at Cushing, the storage hub for U.S. crude oil traded on the futures market, has led to a greater price difference between U.S. crude and the European benchmark Brent.
U.S. crude’s discount to Brent hit a record near $28 in October. The spread is now around $18 a barrel.
“Enbridge’s Gulf Coast Access projects give Bakken and western Canadian producers timely, economical and reliable options to deliver a variety of crudes to refinery hubs throughout the heart of North America and now as far as the Gulf Coast,” said Patrick D. Daniel, chief executive officer, Enbridge, said in a statement.
Map on North America oil pipeline projects:
Seaway is the first project on the drawing boards of many companies expected to alleviate the glut in the oil hub of Cushing, Oklahoma.
The reversed Seaway line could be in service at an initial capacity of 150,000 bpd by the second quarter of 2012, Enbridge had said in November after purchasing ConocoPhillips’ (COP.N) stake in the pipeline for $1.5 billion. Station additions and modifications needed to ramp up flow rates to 400,000 bpd will be completed by early 2013.
The southern leg of TransCanada Corp’s (TRP.TO) Keystone XL is also looking to drain the Cushing glut.
President Barack Obama has pledged to accelerate approval of the southern leg of the pipeline, seeking to deflect criticism that his rejection of the full project helped drive up gasoline prices.
Separately, Enbridge said the Flanagan South Pipeline will be constructed along the route of Enbridge’s existing Spearhead Pipeline between the Flanagan Terminal, southeast of Chicago, to Enbridge’s Cushing Terminal in Oklahoma. The pipeline is expected to be in service by mid-2014.
Reporting by Arpita Mukherjee and NR Sethuraman in Bangalore; Writing by Manash Goswami; Editing by Himani Sarkar