HOUSTON -- More pipeline capacity is coming to bypass Cushing, Okla., in favor of Houston-area refineries.

Yesterday Magellan Midstream Partners L.P. of Tulsa, Okla., announced that it is expanding on plans to reverse an existing pipeline to carry crude oil from the Permian Basin oil patch to the Gulf of Mexico coast's refining complex. The project is expected to alleviate the glut of crude in storage at Cushing that the industry is struggling to get out to markets.

Earlier Magellan announced it would reverse the flow of a pipeline to carry West Texas light sweet crude from Crane, Texas, to Houston. The project had a planned initial capacity of 135,000 barrels of crude oil per day, but after a recently completed open solicitation for supplies, Magellan says it sees enough demand for the project to bolster those plans by some 66 percent, to carry a full capacity of 225,000 barrels of crude per day instead.

"The market clearly confirmed the attractive fundamentals of our Crane to Houston crude oil pipeline, and we are pleased to increase the scope of our project in response to this strong industry demand," said Magellan CEO Michael Mears in a company release. "We continue to believe our Crane to Houston pipeline will be the most direct and cost-efficient route to deliver growing West Texas crude oil production to the refineries in the Houston and Texas City area."

Domestic oil producers have been looking for a way to move more crude either out of or away from Cushing to better tie West Texas Intermediate (WTI) benchmark North American crude prices to international going rates. The Cushing bottleneck has been depressing WTI prices below that of the international Brent Crude index.

Magellan says its pipeline reversal and retooling project, to cost some $375 million, will be completed and fully running at the expanded capacity rates by mid-2013. The company may spend an additional $70 million to build a smaller section of pipeline to bring crude oil out of Midland, Texas, to Crane and onward to Houston.

Historically, most Permian Basin oil was transported out of Texas to Cushing's massive storage hub. Magellan's announcement yesterday is only the latest in a series of moves that seem destined to shift the North American oil trading hub to the Houston area, possibly upturning the way the WTI price is determined, or replacing WTI as the benchmark altogether (Greenwire, Feb. 28, 2012).

In November, Enbridge Inc. and Enterprise Products Partners announced that they would work together to reverse flow of the Seaway pipeline to send crude from Cushing to Houston. That pipeline was initially designed to send imported crude from the Houston Ship Channel to Cushing.

Indications that the ship channel could become the new crude oil pricing hub were further reinforced when TransCanada announced plans to proceed with building a segment of the controversial Keystone XL pipeline to extend from Cushing to Houston, sending more crude south to the Gulf Coast refineries.

Other pipeline projects in the works aim to bring booming liquids production from south Texas' Eagle Ford Shale to Houston. But these days, drillers are reporting great success in applying the same horizontal drilling and hydraulic fracturing techniques that made the Eagle Ford a success to the Permian Basin.

Those methods and other enhanced oil recovery techniques are increasingly being applied to oil reserves locked in tight formations between the long-spent conventional stores. As a result, oil and gas firms are extending the life of the fields in the Permian Basin and crude oil production is projected to grow there as it is in other tight and shale oil production zones.

Magellan said it expects its pipeline reversal project "to begin transporting crude oil at partial capacity by early 2013, ramping to its full 225,000-bpd [barrels per day] capacity by mid-2013."