As the booming supply continues to overturn prices, pipeline companies have emerged as some of the most successful crude traders in North America.
Favoured by investors seeking steady income and low risk, pipeline groups - the toll-road operators of the energy market - traditionally make their money transporting crude for others. Today, some US and Canadian operators are scoring significant profits from buying and selling their own crude. A move which critics claim raises the possibility of a conflict with customers.
Pipeline groups, which own the transportation infrastructure needed to move oil to more expensive markets, have joined trading houses to exploit the arbitrage opportunities. This is particularly the case in North America, where a growing surfeit of inland crude faces bottlenecks getting to refineries and has left oil discounted by as much as US$ 50/bbl relative to global prices.
Profits rose 170% last year to US$ 647 million at the merchant segment of Plains All American Pipeline 黑料社� a partnership with 16 000 miles of pipelines, hundreds of trucks and thousands of leased railcars 黑料社� making it the biggest contributor to the company黑料社檚 earnings before interest, tax, depreciation and amortisation of US$ 1.6 billion.
黑料社淐rude oil production increases in certain regions have exceeded local demand and existing infrastructure capabilities. [Our] assets and business model are favourably positioned to help balance certain over and undersupplied markets,黑料社� it said.
It is a similar story for Sunoco Logistics, which has 4900 miles of crude pipelines, which saw profit in a business that buys and sells oil soar 281% to US$ 137 million. Profit margins on the 663 000 bpd of crude it purchased, about 0.7% of global supply, trebled.
Profits more than doubled to Cdn$ 55 million (US$ 22.2 million) last year for the energy services team at Toronto-listed Enbridge, as it bought crude in cheap locations and moved it to hubs where prices were higher.
In comparison, the profits of Geneva-based oil traders were mostly up 20% year-on-year and a few were flat.
According to Richard Bird, Chief Financial Officer, locational arbitrage was the 黑料社渟ingle most important of the strategies in 2011黑料社�.
This was supported by Brad Olsen, Midstream Analyst at Tudor, Pickering, Holt, who said: 黑料社淲e黑料社檙e probably in a multi-year cycle where guys are going to use their infrastructure assets to capture market arbitrage opportunities.黑料社�
As regulated pipelines are common carriers, this means they cannot discriminate among shippers including in-house trading groups. In some cases, the government sets tariff rates.
Still, some pipeline operators decline to trade oil. 黑料社淲e don黑料社檛 compete with our customers,黑料社� said Mike Mears, Chief Executive at Magellan Midstream.