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Analysis: Permian producers face diverging outlook for oil, gas in 2019

Buckeye cancels open season for 600,000 b/d Permian-to-USGC oil pipeline: CEO

Houston — Buckeye Partners is not going ahead with its planned Permian-to-US GulfCoast crude pipeline, and is instead investing in Corpus Christi marineand storage facilities, CEO Clark Smith said Friday.

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Effective April 30, open season for the 600,000 b/d South Texas Gatewaypipeline has been terminated, Smith said on an earnings call.

In late 2017, Buckeye launched an open season for a 30-inch pipeline thatwould run from the Permian Basin and nearby Gardendale to the two exportdestinations at Corpus Christi and the Houston Ship Channel.

The project was due to start up in 2020.

Buckeye has instead decided to focus on its South Texas Gateway Terminal,for which the company estimates its share of investment to be $150million to $170 million, Smith said.

"We will build two docks capable of loading Suezmax and VLCC [vessels],along with 3.4 million barrels of crude storage and connectivity to anexport pipeline," he said. "This will be the initial scope of our projectand it is already contracted. We are also in talks with several othercustomers to ink new deals that will give us the option to increasestorage to 10 million barrels."

In late April, Buckeye unveiled plans for its South Texas GatewayTerminal project, located on a new deep-water marine terminal atIngleside on the 36-mile main ship channel serving the Port of CorpusChristi.

The terminal will be built on a 212-acre waterfront parcel at the mouthof Corpus Christi Bay and serve as a primary outlet for the 700,000 b/dGary Oak pipeline that will deliver crude oil and condensate from thePermian Basin. Buckeye would own a 50% interest in the facility and alsobe the operator with Phillips 66 and Andeavor, each of which will own25%. The initial phase of the facility will start commercial operationsin end 2019, Buckeye said then.

"The planned dredging of the Corpus Christi main channel will alsoimprove the economics of crude exports from the US Gulf Coast," Smithsaid Friday, without giving any figure.

The US Army Corps of Engineers is due to start work in June on a dredgingprogram to deepen the main ship channel to 54 feet from the current 45feet and also expand the width of the channel entrance at Ingleside andCorpus Christi to 530 feet from 500 feet and 400 feet, respectively, thePort of Corpus Christi has said.

STRATEGIC SHIFT

A lack of pipeline takeaway capacity has deepened price discounts forPermian crudes, and drawn attention for the need to build new pipelines.Permian production is fast ramping up, projected by S&P Global PlattsAnalytics to grow at 100,000 b/d each month for 2018.

Still, Buckeye is the second midstream player to have recently pulled theplug on Permian pipeline plans. In mid-April, Magellan Midstream Partnerssaid it was holding plans to build a 350,000-b/d pipeline and shiftingits attention to waterfront assets at Corpus Christi.

Lots of pipelines have been proposed from the Permian and this wasputting pressure on midstream players to make their pipeline tariffscompetitive, Magellan's senior vice president for commercial crude oil,Robb Barnes, said at the time, noting such a scenario led "us to believewe could spend our money more wisely elsewhere."

Likewise, Buckeye is reducing the financial risk of building a pipelineand remaining focused on its core areas of strength.

Buckeye is a strong terminal player and already has a condensate splitterand a terminal facility at Corpus Christi, said Sandy Fielden, analystwith Morning Star.

The addition of a large export terminal will boost Buckeye's footprint atCorpus Christi for future exports, Fielden said.

Buckeye - and its partner Trafigura - announced last month the firstshipment of crude onboard a Suezmax tanker from the Buckeye Texas Hubterminal at Corpus Christi after carrying out modifications at thatfacility. --Ashok Dutta, ashok.dutta@spglobal.com

--Edited by Jeff Mower, newsdesk@spglobal.com