Plains All American to Build 440-Mile Oil Pipeline - Analyst Blog


Plains All American Pipeline, L.P. ( PAA ) revealed that it will construct the new 440-mile, 20-inch Diamond Pipeline to meet the increasing demand for midstream services. The Diamond Pipeline will start from the Plains Cushing OK terminal and end in Valero Refinery in Memphis, TN. The new pipeline will have a capacity of transporting up to 200,000 barrels of domestic sweet crude oil per day.

Plain All American Pipeline has plans to connect this Diamond Pipeline with Valero Energy Partner's ( VLP ) Collierville pipeline. The total investment is pegged at nearly $900 million and is expected to be completed late 2016.

The construction of a pipeline involves huge capital expenditure. So to make a pipeline project viable, the operators look to secure long-term shipping agreements with oil and gas producers. Plains All Pipeline likewise struck a long-term shipping agreement with Valero and a related contract for storage and terminalling services at its Cushing Terminal.

This new pipeline by way of feeding the Valero Refinery in Memphis will add to Valero's ability of producing more gasoline, diesel and jet fuel for the greater Memphis and eastern Arkansas region. In Diamond Pipeline, Valero holds an option until Jan 2016 to become a partner by purchasing a 50% interest.

Plains All American Pipeline plays an important role in the North American oil and natural gas market through its capabilities in storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas (LPG) and other natural gas-related petroleum products.

The partnership is investing regularly to strengthen and expand its pipeline and other services in the reserve enriched oil and gas basins. In Dec 2013, the partnership announced that it will invest nearly $400 million to $500 million in the Permian Basin to strengthen its existing pipeline infrastructure. In the same month, the partnership decided to construct a new natural gas liquids (NGL) fractionator and expand its existing condensate stabilization facility in the Eagle Ford area of South Texas.

Plains All Pipeline currently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the oil & gas pipeline industry include Sunoco Logistics Partners L.P. ( SXL ) and Delek Logistics Partners, LP ( DKL ). Sunoco Logistics Partners holds a Zacks Rank #1 (Strong Buy) while Delek Logistics Partners carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: LPG , NGL , PAA , SXL , DKL

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