Plains All American's Permian pipelines in Texas facing oil quality issues, sources say

By Georgina McCartney, Shariq Khan and Nicole Jao

NEW YORK, Sept 16 (Reuters) - Plains All American's crude oil pipelines linking the Permian shale basin to the Corpus Christi export hub in Texas are facing quality issues related to high mercaptans, or naturally-occurring sulfur compounds, according to sources familiar with the matter and a notice seen by Reuters.

"We have recently identified an increased level of Crude Petroleum exceeding 75 ppm mercaptans being delivered to various origin points," the notice dated September 11 by Plains to its shippers said.

Starting October 1, Plains will charge a half-dollar fee on every barrel that fails to meet mercaptan specifications on some of its pipelines in the Gulf Coast region, according to the notice.

Plains said its existing tariff provisions cover off-spec barrels across its system.

"The recent notice simply reminded shippers that these provisions exist and will be enforced," it said in a statement.

The quality issues could force Gulf Coast refiners, especially those in the Corpus Christi region in South Texas, to seek alternatives for the Midland crude oil produced in the Permian and delivered by the impacted Plains pipelines, one of the sources said.

Plains is still trying to identify the cause of the contamination, so it is too early to tell if the issues will impact U.S. crude exports, the source said. Over 2 million bpd of crude oil is exported from Corpus Christi, according to the port's website.

The sources requested anonymity to discuss confidential information.

Plains owns interests in a number of long-haul pipelines that move about 2.1 million bpd of crude oil out of the Permian Basin to Corpus Christi and to the Cushing, Oklahoma storage hub, according to its public filings.