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Phillips 66 pulls out of deferred Liberty Pipeline project

Highlights

To record impairment of about $200 million in Q1

Move follows previous cancellation of Red Oak Pipeline

JV partner Bridger Pipeline now working with Tallgrass

Houston — Phillips 66 Partners is officially pulling out of the long-deferred Liberty Pipeline project that was designed to move 350,000 b/d of crude oil from the Rockies and Bakken Shale to the benchmark Cushing, Oklahoma, hub, the company said.

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The Phillips 66 Partners-led pipeline project was put on indefinite hold more than a year ago when the pandemic crushed global crude oil demand and, since then, the US energy sector has kept tight reins on capital spending.

Phillips 66 Partners will record an estimated impairment of between $180 million and $210 million in the first quarter for pulling the plug on the long-dormant project, it said in a statement April 5. The pipeline would have stretched 700 miles from Guernsey, Wyoming, to Cushing, including a connection to a previously proposed Platteville, Colorado, terminal.

Phillips 66 Partners' joint-venture partner Bridger Pipeline and its parent, True Companies, did not respond to requests for comment, but Bridger already is exploring pipeline alternatives with new partner Tallgrass Energy through recently launched open seasons.

The decision on the Liberty Pipeline is not surprising considering that Phillips 66 in October canceled the planned Red Oak Pipeline from Cushing to the Texas Gulf Coast. Red Oak and Liberty were both proposed and, subsequently, deferred at the same times. So, when Red Oak was killed, it seemed like a similar result for Liberty could follow.

Both the Red Oak and Liberty pipelines were originally scheduled to be in service in the first quarter of 2021.

While US crude oil production remains depressed since the beginning of the pandemic, there is the potential for more alternate pipeline demand from the Bakken if the main crude oil artery, the Dakota Access Pipeline, is ordered shut. The next federal court hearing on the potential DAPL closure is scheduled for April 9.

Bridger and Tallgrass count among those exploring both DAPL and Liberty alternatives, although Bridger technically could still seek a new JV partner for the Liberty project.

As for the future of DAPL, a federal appeals court ruling in January essentially confirmed the four-year-old pipeline is operating illegally without the necessary legal permitting, and that it is up to the US Army Corps of Engineers, now under US President Joe Biden, to determine whether it will let DAPL continue to flow crude oil while a court-ordered environmental review determines whether the needed easement is deserved.

Open seasons

Tallgrass recently launched an open season to increase crude volumes on its 400,000 b/d Pony Express Pipeline from Guernsey to Cushing.

The move meshes with a previous open season jointly announced in March by Tallgrass and Bridger for more crude transportation from the Bakken Shale to Cushing and Texas Gulf Coast destinations that could commence as early as June 1.

Bridger also has incremental capacity available on its Bridger, Belle Fourche and Butte pipelines to move more Bakken crude from North Dakota and Montana to the Guernsey hub. Bridger also could attempt to add more capacity on its existing system or build its indefinitely deferred 150,000 b/d South Bend Pipeline from North Dakota to Montana, although South Bend could not be built by June 1.

In late January, open seasons were announced for capacity expansions on the Bridger and Belle Fourche systems.

Likewise, Tallgrass could aim to expand capacity on the Pony Express. Tallgrass planned to expand the system before the coronavirus pandemic took hold, but those plans were later shelved.