Already world renowned as a delivery point for West Texas Intermediate and Canadian crude, the hub is growing even as domestic drilling ratchets up to levels not seen in more than 30 years. 

Cushing’s momentum is hard to stop these days 

“We have 100 acres here, and we could double that if we wanted to,” said Pete Schwiering, chief operating officer for Rose Rock Midstream LP, which is almost up to 7 million barrels in storage capacity.

“We’ve been under construction constantly since 2008.” Tulsa-based Rose Rock is one of numerous pipeline and/or trading companies dramatically expanding their tankage at Cushing. Houston-based Plains All-American Pipeline LP is a major builder, as is Canada’s Enbridge and other players such as Tulsa’s Magellan Midstream Partners LP.

Oil play’s the thing

Cushing is either a solution or part of the problem in today’s crude oil market, depending on the viewpoint on whether a glut exists or not. Some blame a backup at Cushing for causing the pricing discount of WTI to London Brent crude, and it also drew national attention as one of the key destinations for the controversial Keystone XL pipeline project from Canada. People can talk all they want about Cushing.

Companies are taking action and don’t look to be stopping their growth projects any time soon. “I don’t think we’re getting anywhere close to where there will be no room at the Cushing inn,” quipped Tom Kloza, chief oil analyst for the Oil Price Information Service.

“Almost every MLP conference call I listen to mentions ongoing Cushing tank construction or expansion projects. I get the feeling that there will be more steel in Cushing than in the skyscrapers of China by 2013.”

Kloza is fond of colorful analogies, but he knows the rock-solid importance of the Cushing hub to U.S. domestic crude markets. WTI is priced there for the New York Mercantile Exchange contracts, and it is also a delivery point for oil from the Permian Basin, Denver-Julesburg Basin, Canadian oil sands and other shale plays.

SemGroup Corp., the parent firm that spun off its SemCrude assets to create Rose Rock last year, is planning a joint venture with Gavillon and Chesapeake to build a pipeline from the Granite Wash and Mississippi lime formations in western and northern Oklahoma, respectively, to the tanks in Cushing.

The Seaway Pipeline, which historically ran north to Cushing, is being reversed to give Gulf Coast refineries access to slightly less expensive domestic crudes. Seaway owner Enterprise Product Partners reported that the system, which will start with about 150,000 barrels per day once reversal is complete in a few months, is already completely booked for moving product.

Survival story

Cushing also proved to be a lifeline for SemGroup after its 2008 bankruptcy from oil futures trading losses.

Work on both the White Cliffs Pipeline from Colorado and the tanks in Cushing had only just begun when the money dried up and some pipeline workers were walking off the job. SemGroup needed bankruptcy court approval and bank help to free up funds to complete those projects.

The OKs were crucial. “I’m still amazed that the company still exists after that bankruptcy,” said Rose Rock senior engineer Carl Karner, who is overseeing the company’s tank construction projects.

Rose Rock, which was SemGroup’s SemCrude division before spinning off, gained more than $23 million in profits for 2011, according to its earning report. The partnership, which went public in December 2011, expects to spend $37 million on capital projects this year and generate up to $35 million in raw earnings for all of 2012. “I’ve spent 42 years in this business, and the No. 1 thing I’ve seen is the proliferation in Cushing and what’s going on with hydraulic fracturing,” Schwiering noted.

“This idea of energy independence – it’s going to happen with all the new domestic production they’re finding.” Cushing appears destined to receive oil from all of the aforementioned production plays and maybe even the exploding Bakken Shale, which straddles the North Dakota/Montana state line. The Seaway reversal and a promised southern leg of the Keystone XL will make the Cushing crude more available to Gulf refineries.

Banking on growth

Rose Rock officials gave the Tulsa World a close-up look inside its terminal tanks. The group journeyed inside one under construction and up to the top of another storage site.

Terminal manager Cecil Mooreland, a Cushing native, is both proud of the site and famous within the company for his work there. He was chosen by vote to ring the bell when Rose Rock visited the New York Stock Exchange to celebrate its initial public offering.

Mooreland checks out the sample pots and does the centrifuge testing to make sure Rose Rock is receiving the kind and volume of crude oil promised and sending it back out the right way; 7 million barrels worth of product moving in and out requires exacting detail down to the last drop. Rose Rock and SemGroup are banking big on Cushing’s future growth.

So are Plains, Enbridge, Magellan, Blue knight, Gavillon and other industry firms large and small. “Although we have 12 million barrels of storage in Cushing today, Magellan is interested in providing additional crude oil storage services in Cushing and other locations if our customers are willing to make future commitments for that additional storage,” Magellan spokesman Bruce Heine said.

Cushing players

Storage owner    –    Operator capacity (barrels)*

1.  Plains All-American – 18.5 million
2. Enbridge – 18 million
3. Magellan Midstream – 12 million
4. Rose Rock Midstream – 7 million
5. Blueknight – 6.7 million
6. Gavillon – 4 million
7. Enterprise Product – 3.1 million
8. Parnon – 3 million
9. Deep Rock – 1 million
10. Coffeyville Resources – 1 million
11. ConocoPhillips – 800,000

*some estimated figures include planned expansion by end of 2012