Plains All American crude oil pipelines connecting the Permian basin to Corpus Christi's export hub are experiencing quality problems due to high levels of mercaptans or naturally occurring sulfur compounds. This is according to sources who have been familiar with this matter, and an official notice.

Plains sent a notice to its shippers on September 11, saying, "We recently detected an increased level Crude Petroleum over 75 ppm Mercaptans delivered to various origins."

According to a notice, Plains will begin charging a fee of half a dollar for every barrel that does not meet the mercaptan specification on certain pipelines located in the Gulf Coast Region.

Plains says its tariff provisions already cover barrels that are not in compliance with its specifications.

In a press release, it stated that "the recent notice reminded shippers of these provisions and their enforcement."

One source said that the quality issues may force Gulf Coast refiners to look for alternatives, particularly those in South Texas' Corpus Christi area, in order to obtain Midland crude oil from the Permian, which is delivered via the affected Plains pipelines.

Plains is still trying identify the cause of contamination. It is therefore too early to say if this will have an impact on U.S. crude oil exports. According to the website of Corpus Christi port, over 2 million barrels per day (bpd) of crude oil are exported.

Sources requested anonymity in order to discuss confidential information.

Plains has interests in several long-haul oil pipelines, which move roughly 2.1 million barrels per day (bpd) of crude out of the Permian basin to Corpus Christi, and then to the Cushing storage hub in Oklahoma, according to public filings. (Reporting and editing by Shariq Khal, Nicole Jao, and Georgina McCartney; Emelia Sithole Matarise, Liz Hampton, and Chris Reese).

(source: Reuters)