Kinder Morgan Energy Partners (NYSE:KMI) said last week that it is expanding its Sweeny Lateral pipeline that runs between the Kinder Morgan Crude Condensate (KMCC) pipeline and a refinery in Sweeny, Texas, owned by Phillips 66 (NYSE:PSX).
The KMCC pipeline, which went into service last June, moves crude oil and condensate from Texas' Eagle Ford Shale to the Houston Ship Channel. The Sweeny expansion project will more than treble capacity on the 27-mile, 12-inch pipeline, from an initially planned 30,000 barrels per day to 100,000 barrels per day. The project is slated for completion by the end of 2013.
Kinder Morgan will add new pumps and an additional storage tank at its pump station in Wharton County, Texas. The company said it would also boost truck offload capabilities at its station in DeWitt County, Texas, to accommodate the capacity increase.
From Phillips 66's perspective, the Sweeny expansion will help its Sweeny refinery boost usage of Eagle Ford crude, as part of the refiner's broad strategy of using more cheap domestic crude oil. The company's CEO, Greg Garland, recently said that, within a couple of years, Phillips hopes to run 100% North American crudes at its refineries.
Growing demand for Eagle Ford infrastructure
The Sweeny Lateral pipeline is the latest in a host of new expansion projects serving the prolific Eagle Ford oil play in Texas. The play, which lies within the Texas Maverick Basin, is estimated to contain some 3.35 billion barrels of technically recoverable reserves.
In addition to its massive hydrocarbon potential, the Eagle Ford's close geographical proximity to the U.S. Gulf Coast refining hub, which accounts for more than 40% of U.S. refining capacity, has attracted a bevy of leading oil and gas companies who are eager to capitalize on the play's superior economics.
Among the Eagle Ford's largest leaseholders are heavyweights such as Chesapeake Energy (NYSE:CHK), EOG Resources, and Apache Corp, as well as smaller oil and gas firms like Newfield Exploration and Pioneer Natural Resources.
Chesapeake, in particular, has allocated 35% of its drilling and completion capital this year to its Eagle Ford operations – more than any other play. As the company continues its transition away from natural gas and toward a more balanced commodity mix, its Eagle Ford assets will be crucial in meeting its oil production target for the year, especially as regional infrastructure improves.
Motley Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.