Actions of midstream companies indicate an imminent removal of a major bottleneck in the United States crude oil pipeline network. Pipeline projects by companies including Phillips 66, Exxon Mobil, Delek, and Energy Transfer Partners (ETP) seek to transport more crude from Texas to strategic cities in Louisiana such as Lake Charles and Shreveport. Already, work is ongoing on a Plains All American pipeline (Caddo pipeline) that is designed to transport 80,000 barrels per day from Longview, TX to Shreveport. The new pipeline capacity will make it easier to gather crude oil from remote inland fields and move them to coastal refineries, helping to narrow the spreads between different crudes traded in the two regions of the Gulf Coast, which are geographically close but have dissimilar pipeline infrastructure.
In the years following the shale boom in the United States, midstream participants have added up to 2 million barrels of pipeline capacity connecting the prolific plays (Eagle Ford and the Permian Basin) in Texas to the refineries and storage facilities in Houston. Also, there has been ample pipeline capacity added to connect Houston to the hub of Cushing, OK. Though also in the Gulf Coast, Louisiana largely has not benefited much from this increase in pipeline capacity.
It is widely known that due to the more vast pipeline networks enjoyed by Texas refineries, coupled with their proximity to major oil plays, there is a significant spread between prices of crude between Texas and Louisiana, to the disadvantage of refineries in Louisiana. For example, LLS has recently traded somewhere around $6 above WTI. This premium has contributed to the increased importation of medium, sour crude by refiners in the US Gulf Coast.
As a more equitable pipeline network begins to take shape between Louisiana and Texas, it is expected that the price of LLS will drop to a level that will only reflect the cost of pipeline transportation and quality differences relative to WTI. If the price of LLS drops, refiners would be tempted to replace imported medium, sour crude with domestic light, sweet crude. Also, this substitution is more likely to hit waterborne imports of medium crudes from the Middle East (Saudi Arabia and Kuwait mainly) than domestic sour crudes such as the Mars crude from the Gulf of Mexico.