Texaco Pipeline to Resume Operations / Timing of Flood Damage Minimized Effect on Energy Futures

Article excerpt

The Basin Pipeline System over the Red River could resume a 215,000 barrel-per-day flow of crude oil by late today or Saturday once flood damage is repaired, according to the pipeline's operator, Texaco Pipeline Inc.

Flooding caused by heavy rains in May damaged the Basin System, which is owned by Texaco, Arco Pipeline Co. and Shell Pipe Line Corp. The pipeline transports crude oil from New Mexico, through Wichita Falls in West Texas, across the Red River to Cushing, Okla..

Heavy floods also damaged Arco's pipeline transporting crude oil between Best, Texas, and Ringling, Okla., and the Amoco Pipeline Co. pipeline transporting natural gas liquids from the company's West Yantis, Texas, natural gas processing plant.

However, beyond the initial effect of pushing July contracts for energy futures higher during two days of trading last week on the New York Mercantile Exchange, the effect will be minimal, said Bo Poats, director of research at the Energy Futures Group.

The exchange requires crude oil futures contracts to specific price based on delivery to Cushing, a point where several pipelines transport crude oil from the Gulf Coast and New Mexico meet and transfer the supply to pipelines reaching the northeast and midwest.

Storage facilities at Cushing, the timing of the flood and the use of procedures allowing traders to deliver crude oil to locations other than Cushing all minimized the effect of losing 215,000 barrels of crude oil per day, Poats said.

The June contracts for crude oil had to be made by May 25. If the flood had occurred on May 20, the market would have been "scrambling for crude oil," Poats said.

In the past several months, the market was experiencing tightness as purchasers looked for domestic barrels, he said. If May had been no different and the flood had been a week earlier, the reduced supply would have a stronger effect upon the supply.

The flood "caused some price support for a few days, but despite the fact that crude stocks on land are falling, there's plenty of crude on the water," Poats said, referring to import supplies.

"It dampens the potential impact," he said.

"Maybe it will have a 10 percent effect" on the crude oil supply delivered to Cushing, Poats said.

The initial estimated cost to repair the damaged portion of the Basin System was $250,000, said Dan Stevens, manager of public and government affairs for Texaco.

The system was damaged on the north side of the Red River in Cotton County, when the flooding water rechannelled the river and washed the supporting soil from under the pipeline on May 30. The line will be buried in a trench below the channel caused by the floodwaters, Stevens said.

At the time of the flood, the 24-inch pipeline was running at 55 percent capacity, or 215,000 barrels of crude oil per day, Stevens said. Total capacity is approximately 425,000 barrels of crude oil per day.

Though the company's storage facility at Cushing has below normal levels of inventory, "it hasn't posed a problem for us," Stevens said.

Between 2,000 barrels and 10,000 barrels of crude oil spilled into the river.

The Environmental Protection Agency conducted a helicopter fly-over Saturday noting crude oil patches in areas where the water had receded, said Karen Brown, a spokesperson in the agency's Dallas office.

Because of the flow and the turbulence of the river, the damage from that size spill was minimized, Brown said.

"The oil emulsified and stuck to oil particles and tree roots," Brown said. "As the river calms down and there's more heat - sunlight - the the binding of the oil will break, the oil will be released from the soil and will surface. …