(Updates with Flanagan South information in 11th paragraph.)
July 3 (Bloomberg) -- Enterprise Products Partners LP and Enbridge Inc. said the 512-mile expansion of their Seaway oil pipeline is mechanically complete, with commissioning work remaining before it starts to move oil south from the delivery point for West Texas Intermediate futures in Cushing, Oklahoma.
Enterprise looped the existing Seaway line with a parallel pipe, increasing capacity to the Houston area to 850,000 barrels a day, the companies said in a joint statement.
The expansion will draw barrels from the nation’s biggest oil-storage hub, where stockpiles have fallen 48 percent this year to the lowest level in five years. New pipelines and expansions, including the southern leg of TransCanada Corp.’s Keystone XL system, helped eliminate a glut that built at Cushing as oil flooded in from Canada and North Dakota.
“It’s not flowing yet, but it’ll be flowing later this month for sure,” James Williams, president of energy consultant WTRG Economics in London, Arkansas, said by telephone today. “It’s going to give the folks north of Cushing more of an option to trade off going by rail or by pipeline.”
Workers need to perform several tests on the pipe to make sure there are no leaks before pumping oil into it, said Andy Lipow, an oil industry consultant with Lipow Oil Associates LLC in Houston.
“The pieces of the pipe are put together, the pumps are hooked up,” he said. “Now it’s been turned over to operations, and they have to complete their procedures ensuring the line is ready to receive oil and begin routine operations.”
The new 30-inch Seaway Loop Pipeline connects to the Jones Creek storage terminal near Freeport, Texas, the companies said in the statement. Jones Creek connects to Enterprise’s ECHO crude storage facility in Houston by a 65-mile, 36-inch line. A 100-mile pipeline from ECHO to Beaumont and Port Arthur is expected to be completed this month, and commissioning of both lines will continue through the third quarter.
West Texas Intermediate futures were down 54 cents, or 0.5 percent, to $103.94 a barrel on the New York Mercantile Exchange at 1:39 p.m. New York time. WTI’s discount to the European benchmark crude Brent widened by 11 cents to $6.87.
Enterprise, a Houston-based company that operates the Seaway pipeline and co-owns it with Enbridge, reversed the system in May 2012 and expanded its capacity to 400,000 barrels a day in January 2013. As part of the most recent expansion, Enterprise said storage at the ECHO terminal would increase by 900,000 barrels to 6 million.
Crude stockpiles at Cushing slid 1.36 million barrels, or 6.2 percent, to 20.5 million in the week ended June 27, the lowest level since Nov. 14, 2008, according to U.S. Energy Information Administration data. They were 41.8 million in January. Supplies in PADD 3, which includes the U.S. Gulf Coast, have climbed 19 percent this year to 204.8 million barrels.
With Cushing inventories as low as they are, Seaway won’t be able to run anywhere close to its new expanded capacity until Enbridge starts pumping crude through its 600,000-barrel-a-day Flanagan South pipeline, which will bring oil to the Oklahoma hub from the Chicago area.
The pipeline is expected to be filled with crude and ready for service late in the third quarter, Larry Springer, a Houston-based spokesman for Enbridge said by e-mail. Most of the pipe construction is complete along the 593-mile route, and work continues on seven pump stations along it.
“You need Flanagan South to be complete before the Seaway twin can really run,” said Amrita Sen, chief oil market analyst for Energy Aspects Ltd. in London.
Seaway’s committed shippers sign take-or-pay contracts to get capacity on the pipeline, meaning they pay Enterprise whether they ship or not. Customers who plan to ship oil to Cushing via Flanagan South and then move it down Seaway will not have to pay their Seaway tariffs until Flanagan South is complete, Springer said.