Phillips 66 starts Gray Oak crude-line service: Update

Phillips 66 has started initial service on its 900,000 b/d Gray Oak pipeline from the Permian basin to Corpus Christi, Texas.

The company also said today that full service on the line will start in the first quarter of 2020, as planned.

Phillips 66 is proposing to lower some tariffs on Gray Oak as competition heats up to move crude to the US Gulf coast.

The spot tariff for moving crude from points in west Texas to various destinations in south Texas, including Valero's 95,000 b/d refinery in Three Rivers near Corpus Christi, would be lowered to $3.90/bl, from $4.75/bl.

The tariff is for "accelerated commissioning service", according to a filing this week to the Railroad Commission of Texas. The same $3.90/bl rate applies to committed shippers whose contracts include the accelerated service.

Gray Oak stretches from the Permian basin and the Eagle Ford shale in south Texas to Corpus Christi and to the Sweeny area south of Houston, including to Phillips 66's 247,000 b/d Sweeny refinery. The initial service only includes the Corpus Christi destinations, Phillips 66 said last month.

Gray Oak is the latest pipeline to the US Gulf coast to cut spot tariffs, reflecting greater competition and narrowing price spreads.

The WTI Midland price discount to WTI Houston is averaging about $2.35/bl for the December trade month-to-date, according to Argus data. That is down by more than half from the average discount for the August trade month which was $5.16/bl. Two major pipelines — the 670,000 b/d Cactus 2 and the 400,000 Epic line — went into service in mid-August moving Permian crude to Corpus Christi.

The south Texas port is becoming an increasingly important outlet for exports of US crude.

The WTI Midland price discount to WTI Houston peaked above $20/bl in October 2018, before the new pipelines and some expansions started service.

source: Argus Media