Oil industry in Cushing, Oklahoma explained

The city of Cushing in Oklahoma is a central hub within the United States and worldwide oil industry. It connects major pipelines within the United States and is the location where the oil futures contracts end up being delivered. It is the psychical delivery point of West Texas Intermediate oil.

Operators

Cushing serves as a transshipment point for gathering crude oil from all directions. Dozens of pipelines converge around the city, which offers storage facilities to temporarily hold crude awaiting delivery to refiners or other outlets.[1] In 2005, crude oil and refined products in the US were almost always transported by interconnected pipeline systems. In Oklahoma, eight private companies operated almost all the pipelines and frequently operated oil terminals and refineries: Enbridge; Enterprise Products; Explorer Pipeline; Jayhawk; Magellan Midstream Partners; Plains All American Pipeline; Sunoco; and Valero Energy.[2]

The crude oil tanks around Cushing have approximately 91 million barrels of storage capacity.[3] [4] [5] On October 28, 2016, tanks held a total of 58.5 million barrels of oil,[6] though it has dropped in 2018.[7]

Tank farm owners at Cushing include:[8]

Pipelines with connections at Cushing include:[9]

Transhipment point for West Texas Intermediate (WTI) oil

Cushing is the delivery point for West Texas Intermediate, a blend of US light sweet crude oil streams traded on the New York Mercantile Exchange[19]

Cushing's strategic position as a major hub in oil supply led to WTI's development as a significant physical market price reference or benchmark for over three decades.

In 2005 Cushing was described as the most significant trading hub for crude oil in North America, connecting the Gulf Coast suppliers with northern consumers.[20]

By 2007 Cushing held 5% to 10% of the total US crude inventory. Signs made of a pipe and valve on the major highways near town proclaim Cushing to be the "Pipeline Crossroads of the World", and the town is surrounded by several tank farms.

Oil futures designated delivery point in the US

On April 13, 2007, the now-defunct Lehman Brothers released a study which claimed that West Texas Intermediate (WTI) crude at Cushing is no longer an accurate gauge of world oil prices.[21] By May 2007, Cushing's inventory fell by nearly 35% as the oil-storage trade heated up.

Oil giant BP, and energy-transport and logistics firms Enbridge Energy Partners (an affiliate of Canada's Enbridge), Plains All American Pipeline and Energy Transfer LP own most of the oil storage tanks in Cushing.

Oil storage became big business in 2008 and 2009, when the supply glut in the oil market led to situation where oil futures were higher priced than their spot price.[22] Many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turned sizeable profits simply by sitting on tanks of oil.[23] Investors can choose to take profits or losses prior to the oil-delivery date on the basis of specific contracts. Alternatively, they can leave the contract in place and take physical delivery of the oil at an "officially designated delivery point" in the United States; this delivery point is usually Cushing.

On July 13, 2010, BP announced it will sell its assets in Cushing to Magellan Midstream Partners.[24]

In April 2020, it was lack of storage capacity at Cushing which turned WTI petroleum futures contracts negative for the first time in history.[25] [26] While Cushing has maximum storage of about 90 million barrels across 15 terminals, working storage is closer to 76 million barrels, about 13% of total U.S. oil storage capacity.[27] With 59.5 million barrels stored, little demand for oil from customers, and much of the remainder of the storage capacity already booked, traders holding contracts for hundreds of thousands of barrels of oil for delivery at Cushing on April 21 realized they had no place to put the oil, and storage fees charged under the contracts for not taking the oil could be astronomical. Thus paying a party having already-contracted storage capacity to take the oil was cheaper than incurring those contractual storage fees.

Cushing storage hub bottleneck

The bottleneck at Cushing's giant storage hub distorted benchmark US oil prices for many years. In 2007 a large stockpile of oil at the facility was caused largely because Valero Energy Corp.'s McKee refinery near Sunray, Texas, was temporarily shut down.[28] With the refinery closed, crude oil prices were artificially depressed at the Cushing pricing point. The Eagle North pipeline reactivated in 2010, adding offtake capacity to Cushing by connecting Valero's oil refinery in Ardmore, Oklahoma with Cushing's cheap crude oil. This should have resulted in boosting WTI prices which were discounted against Brent crude oil because of the glut.[29]

In March 2013 Valero Energy Corp.'s (VLO) McKee refinery in Sunray, Texas was closed for five weeks for planned maintenance.[30]

Refineries

Cushing has had over 50 different refineries in the course of its history.

In May 2023, Cushing was selected as the site for a $5.56 billion crude oil refinery for processing 250,000 barrels per day of light and sweet crudes into low-carbon transportation fuels.[31] The next-generation refinery, built with a goal of zero-carbon footprint operation, should be operational in 2027.[31]

Seismic activity

In October 2014 two moderate-sized earthquakes (Mw 4.0 and 4.3) struck south of Cushing, below one of the largest crude oil storage facility and gas pipeline transportation hubs in the world. The system also includes operational sections of the Keystone pipeline.[32]

On 6 November 2016, around 7:44 pm, a 5.0 MW earthquake rattled north-central Oklahoma. The quake was centered one mile west of Cushing. It was the sixth 5.0 magnitude or higher to strike the state since 1882. Three of those larger quakes occurred in 2016, and the strongest ever recorded in Oklahoma was a 5.8 magnitude that hit Pawnee (25 miles from Cushing) in September.[33]

According to George Choy, a geophysicist with the U.S. Geological Survey, Oklahoma has had a severe spike in earthquakes of 3.0 magnitude or higher since 2008. The number of 3.0 magnitude quakes rose from 2 in 2008 to 889 in 2015, according to USGS statistics. In 2016, there have been 572 (up to November). "The oil companies have said for a long time that these are natural earthquakes, that they would have occurred anyway," Choy said, "but when you look at the statistics, that argument does not fly."

Analysis of the spatial distribution of earthquakes and regional moment tensor focal mechanisms indicated reactivation of a subsurface unmapped strike-slip fault. The discovery stoked fears among scientists about other unknown faults that could be triggered by oil and gas wastewater being injected deep underground.[34] Coulomb failure stress change calculations indicated that the Wilzetta Fault zone south of Cushing could produce a large, damaging earthquake comparable to the 2011 Oklahoma earthquake at Prague, Oklahoma.

Much of the production, using new horizontal drilling techniques, produces at very high rates, with very high water-to-oil ratios. Thus many of the disposal wells, which re-inject the brine into underground formations, handle much more water at much higher pressures than has been common in other, often older, plays. When high volume, high pressure liquids follow the planes in some susceptible dormant faults, it frequently causes them to slip resulting in quakes. After the strongest earthquake in Oklahoma's history, at Pawnee, recorded at 5.8 on the Moment magnitude scale, concerns about the relationship between disposal wells and earthquakes caused state and federal regulators to respond by shutting down more than 50 disposal sites and wells across the state, considering their proximity to fault lines.

See also

Notes and References

  1. Web site: Light Sweet Crude Oil (WTI) Futures and Options: When the World Asks, "What's the Price of Crude Oil?" WTI is the Answer . CME Group . 2013-04-15 . https://web.archive.org/web/20130520144214/http://www.cmegroup.com/trading/energy/files/en-153_wti_brochure_sr.pdf . 2013-05-20 . dead .
  2. News: Company prepares to construct pipeline through Muskogee, McIntosh counties . 28 August 2016 . . D.E. . Smoot . 28 August 2016.
  3. http://www.cbc.ca/news/business/oil-tanker-demand-booms-as-traders-wait-out-cheap-oil-1.2900556 Oil tanker demand booms as traders wait out cheap oil; cbc.ca; January 14, 2015.
  4. Web site: US running out of room to store oil; price collapse next? - Yahoo News. March 3, 2015. https://web.archive.org/web/20150303191702/https://news.yahoo.com/us-running-room-store-oil-price-collapse-next-171025276--finance.html. March 3, 2015.
  5. Web site: EIA - Working and Net Available Shell Storage Capacity, September 2019.
  6. Web site: Extensive damage reported from Oklahoma earthquake near major oil hub. www.cbsnews.com.
  7. Web site: USA — Weekly. Oil Sands Magazine.
  8. Web site: Inside the World's Biggest Tank Farm – Cushing, Oklahoma, USA.. Luke. Upton. January 30, 2014.
  9. Web site: U.S. Crude Oil Pipeline Project. Yahoo Finance. April 6, 2015.
  10. Web site: Company history; EOG Resources.. March 2, 2015. https://web.archive.org/web/20150310062300/http://www.eogresources.com/about/company_history.html. March 10, 2015. dead.
  11. https://www.ndoil.org/news/industry_news/first-train-with-eog-resources-bakken-crude-oil-departs-stanley-nd-for-oklahoma/ First train with EOG Resources Bakken crude oil departs Stanley, ND for Oklahoma
  12. http://jfsco.com/projects/projectdetails/crude%20oil%20offload.asp Crude Oil Offload Terminal; JFSCO Engineering.
  13. Web site: Great Salt Plains Pipeline; IPS Engineering.. https://web.archive.org/web/20140310062605/http://www.ips-epc.com/great-salt-plains-pipeline-parnon-gathering-llc/. dead. March 10, 2014.
  14. Web site: JP Energy Partners Acquires Parnon Storage and Parnon Gathering. August 14, 2012. www.businesswire.com.
  15. News: Oil Flows Through Keystone . Ken . Newton . St. Joseph News-Press . St. Joseph, Missouri . June 9, 2010.
  16. Web site: Press Release – Keystone Pipeline Starts Deliveries to U.S. Midwest; TransCanada; June 30, 2010. . March 2, 2015 . https://web.archive.org/web/20141124181332/http://www.transcanada.com/5407.html . November 24, 2014 . dead .
  17. Web site: Enbridge . Liquids Pipelines . 2012-02-08 . https://web.archive.org/web/20120206051128/http://www.enbridgeus.com/Delivering-Energy/Pipeline-Systems/Liquids-Pipelines/ . February 6, 2012 . dead .
  18. http://pipelineandgasjournal.com/eia%E2%80%99s-short-term-look-crude-oil-pipeline-infrastructure EIA Short-Term Look At Crude Oil Pipeline Infrastructure; Pipeline & Gas Journal; April 2013.
  19. Web site: This Week in Petroleum. Upcoming Pipeline Capacity Additions Will Facilitate Continued Growth in Crude Oil Shipments from Midwest to Gulf Coast. U.S. Energy Information Administration (EIA). CME Group.
  20. The 2005 Oklahoma Refinery Report: Appendix A . April 2005 . Office of the Secretary of Energy . Oklahoma . dead . https://web.archive.org/web/20081015180310/http://www.ok.gov/marginalwells/documents/2005_Refinery_Rpt_Appendix.pdf . October 15, 2008.
  21. Web site: WTI Prices Don't Reflect International Oil Market, Study Says. Margot . Habiby. Bloomberg. April 13, 2007.
  22. Web site: Michele. Norris. December 17, 2008. Contango In Oil Markets Explained. NPR.org.
  23. News: Where Has All The Oil Gone? After Sitting on Crude, Speculators Unload It. The World's Eyes Fall on Cushing, Oklahoma. The Wall Street Journal. October 6, 2007. Anne. Davis.
  24. News: Magellan snaps up BP midstream package . . NHST Media Group . 2010-07-13 . 2010-07-13.
  25. News: No vacancy: Main U.S. oil storage in Cushing is all booked. April 22, 2020. Laila Kearney & Devika Krishna Kumar, Reuters News Agency, April 21, 2020. May 3, 2020.
  26. Web site: Oil Turns Red. April 22, 2020. Cushing Citizen, April 22, 2020. May 3, 2020.
  27. Web site: The Most Critical Oil Storage In The United States . OilPrice.com, May 2, 2020. May 3, 2020 . Slav . Irina . https://web.archive.org/web/20200504220929/https://oilprice.com/Energy/Crude-Oil/The-Most-Critical-Oil-Storage-In-The-United-States.html . 4 May 2020 . live.
  28. News: Crude Oil in New York Falls on Increasing Supplies in Oklahoma . Mark Shenk . 2007-04-13 . Bloomberg.
  29. News: Reuters . New York . Robert . Campbell . Valero oil refinery to link to Cushing hub soon . 5 October 2010.
  30. News: The Wall Street Journal. Refinery Status: Citgo Reports Leak at Corpus Christi . 4 Apr 2013.
  31. Web site: Cushing chosen as site for $5.56 billion refinery. Curtis Killman, Tulsa World, May 24, 2023. May 25, 2023.
  32. 10.1002/2015GL064669. Reactivated faulting near Cushing, Oklahoma: Increased potential for a triggered earthquake in an area of United States strategic infrastructure. 2015. McNamara. D. E.. Hayes. G. P.. Benz. H. M.. Williams. R. A.. McMahon. N. D.. Aster. R. C.. Holland. A.. Sickbert. T.. Herrmann. R.. Briggs. R.. Smoczyk. G.. Bergman. E.. Earle. P.. Geophysical Research Letters. 42. 20. 8328–8332. 2015GeoRL..42.8328M. free.
  33. https://www.usatoday.com/story/news/2016/11/07/oklahoma-earthquake-fracking-well/93447830/ Oklahoma earthquake reignites concerns that fracking wells may be the cause
  34. http://www.kansas.com/news/nation-world/national/article101515987.html New fault line discovered after 5.8 Oklahoma earthquake

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Oil industry in Cushing, Oklahoma".

Except where otherwise indicated, Everything.Explained.Today is © Copyright 2009-2024, A B Cryer, All Rights Reserved. Cookie policy.