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Zydeco begins uncommitted open season; more Texas crude heads east to Louisiana

New York — Zydeco Pipeline on Monday announced the start of an open season as it looks for uncommitted shippers to fill line space after three of the pipeline's four committed contracts end, while the startup of a competing pipeline has narrowed crude differentials between Texas and Louisiana crudes.

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"Zydeco is seeking binding commitments for non-firm capacity transportation service on its 350-mile pipeline which delivers crude to St. James and Clovelly, Louisiana, from terminals in Houston and Nederland, Texas," the pipeline said in a statement.

Zydeco is owned by Shell Midstream Partners and Shell Pipeline company and had stated previously it would seek out uncommitted shippers to fill the pipe as Texas and Louisiana crude markets evolved.

"Zydeco provides a reliable and cost-effective solution to transport crude to Louisiana refineries, helping alleviate bottlenecks of crude in Houston and Nederland and from the Eagle Ford, Permian Basin, and Bakken," the company said.

Prior to the startup of the Bayou Bridge pipeline earlier this month, Zydeco was the only pipeline which carried crude from the Houston area to eastern Louisiana. Fourth quarter volumes were 704,000 b/d on strong hipper volumes and increased offshore demand. Besides feeding Eastern Louisiana refineries, the pipeline connection to the Louisiana Offshore Oil Port allows for easy loading of VLCCs.

LLS-MEH SPREADS NARROW

The Bayou Bridge startup on April 1 has already narrowed price spread between Light Louisiana Sweet and Magellan East Houston WTI barrels, with front-month LLS holding a 62 cent/b front-month premium so far in the second quarter, compared with the $1.19/b premium in the first quarter, Platts price data shows.

Second-month discounts narrowed even more, with LLS holding a 41 cent/b premium of MEH, compared with the $1.08/b in the first quarter.

The Bayou Bridge runs from Nederland, Texas, to St. James, Louisiana. Energy Transfer is the pipeline operator and owner of a 60% stake, while Phillips 66 Partners holds a 40% stake.

Shell Midstream pointed to changing market conditions, as a spate of new pipelines bringing Midcontinent crudes to the US Gulf Coast are under development, as the reason for hesitance in firm commitments.

"When I talk about market evolving I'm talking about Capline, Seahorse, lot of projects. Some landing in East Houston, the origin point for Zydeco," said Shell Midstream CEO Kevin Nichols on that company's fourth quarter results call. "While we continue our discussions with new and existing shippers we will run the system on spot shipments for non-contracted capacity."

Shell Midstream also added in an additional tariff class for Zydeco, allowing uncommitted shippers to ship between 5,000 b/d and 99,000 b/d. Formerly, the pipeline would only take uncommitted volumes of 1 to 99,000 b/d. Uncommitted rates of 100,000 b/d are still available.

-- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com