Magellan Midstream Partners

Just a few months ago, crude oil producers and marketers were wondering whether there would be enough marine terminal capacity along the Gulf Coast to handle the steadily increasing volumes of crude that would need to be exported over the next few years. Now, with WTI prices hovering around $25/bbl and producers slashing their 2020 drilling plans, expectations of rising U.S. production and exports are out the window. Instead, what may be shaping up is a fierce competition among the owners of existing storage facilities and loading docks to offer the most efficient, lowest-cost access to the water. Today, we continue our series with a look at two large Houston-area facilities: the Houston Fuel Oil Terminal and Seabrook Logistics Marine Terminal.

Last Wednesday, November 22, the Federal Energy Regulatory Commission acted on a Petition for Declaratory Order (PDO) by Magellan Midstream Partners in which the midstreamer asked for FERC’s blessing to establish a marketing affiliate to “buy, sell and ship” crude oil on pipelines owned by Magellan as well as pipes owned by other companies. Today Magellan does not have such an affiliate, although many of its competitors do. Most of those competitors use their affiliates to generate incremental throughput on their pipelines, sometimes by doing transactions that result in losses for the marketing affiliate, but that are still profitable for the overall company because the marketing arm pays its affiliated pipeline the published tariff transportation rate. FERC denied Magellan’s request, coming down hard on such transactions as “rebates” specifically prohibited by the law governing interstate oil pipelines. In today’s blog, we take a preliminary look at FERC’s Magellan order and what it could mean for U.S. crude oil markets.

Mexico’s need to import increasing amounts of transportation and cooking fuels--mostly gasoline, diesel, and liquefied petroleum gas (LPG)—from the U.S. is spurring an infrastructure development boom on both sides of the Rio Grande. Over the past few years this has been a frequently reoccurring pattern:   A fast growing market for hydrocarbons emerges, and the need to efficiently move increasing volumes of product from points A and B to points C, D and E quickly becomes urgent. All hands are called on-deck: trucks, railroads, barges, pipelines—plus storage facilities and distribution terminals. Today, we consider the latest initiatives to deliver gasoline, diesel, jet-kero and LPG from Texas to its southern neighbor.

Last Friday (May 8, 2015), Baker Hughes data showed the Permian basin oil rig count up by two – suggesting that drilling may be picking up in West Texas. A week earlier at the end of April, Enterprise Products Partners (EPD) announced they are moving ahead with a new pipeline from the Permian basin to the Houston area – set to come online in 2017. The new pipeline will add 540 Mb/d of takeaway capacity and comes on top of 450 Mb/d being added in the Permian this year by the Plains All American Cactus and Energy Transfer Partners Permian Express II pipelines. Today we look at the new project and whether the incremental takeaway capacity is necessary.

The September 29, 2014 opening of the BridgeTex pipeline – 5 months later than expected - between Colorado City in the Permian Basin and Houston was expected to bring immediate relief to West Texas producers with crude stranded by a lack of pipeline takeaway capacity. In the past year those producers have had to eat price discounts of $14/Bbl or more in order to find space on crowded pipelines. But although BridgeTex has provided some relief, the congestion will continue until early next year. Today we explain why.

Two years ago, the Double Eagle condensate pipeline from the western oil and rich gas windows of the South Texas Eagle Ford basin simply provided access to Corpus Christi. By early 2015, the Double Eagle will be linked to the Kinder Morgan crude and condensate pipeline to Houston. Together the two systems will offer shippers access to Corpus Christi, Houston, condensate splitter capacity and diluent pipelines to western Canada. Today we describe the growth of this multi-destination delivery system.

Houston crude storage and distribution terminals are getting busy fast these days as a flood of new crude begins to show up from inland production basins. Crude tank storage rates in Houston are double those at Cushing. Houston is now a trading hub for light sweet crude – as witnessed by the launch of a new Platts assessment last week. The Magellan East Houston terminal is the front line receipt point for incoming crude from the Permian Basin. Today we spotlight Magellan’s expanding Houston storage and distribution facilities.

Early next year (2013) the first phase of the Longhorn Reversal project will be completed and an initial 75 Mb/d of crude oil will begin flowing from Crane in the Permian Basin to Houston. Around the same time the Seaway pipeline from Cushing, OK to Houston will expand from 150 Mb/d to 400 Mb/d and the Double Eagle Pipeline in South Texas will start delivering 100 Mb/d of condensate to Corpus Christi. Today we look at how Magellan Midstream Partners has developed a leading position in crude storage and distribution in Cushing, Houston and Corpus Christi during the past two years.

Apart from local refinery demand, the majority of Permian Basin crude production is currently shipped to Midwest refiners on existing pipelines. New takeaway capacity projects look to change that balance towards the Gulf Coast where prices are higher now. Today we review projects to add almost 1 million barrels per day of new Permian takeaway capacity by the end of 2014.