The Gates of Magellan – Front Line Houston Crude Distribution Hub

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.

Back in January of this year (2013) we completed a multi-part series on the build out of crude oil storage and terminal facilities in preparation for the flood of new crude streams headed into Houston on pipelines this year and next. The final episode in that series (see Gulf Coast Crude Oil Flood Preparations – The Terminal Operators) provides a recap and links to all the earlier posts. In May we updated our analysis of the crude distribution network around the Enterprise Crude Houston Oil terminal (ECHO) being built out by Enterprise Product Partners (see Texas Terminal Wars). Today we turn our focus back to Magellan Midstream Partners whose crude terminal in East Houston is rapidly becoming the major distribution point for incoming crude from the Permian basin.

We previously covered Magellan’s growing crude oil infrastructure in Houston as well as Cushing and Corpus Christi in the terminal series mentioned above (see Stocks of Magellan). During the past three years, Magellan has invested heavily in crude oil infrastructure and assembled a set of pipeline and storage assets to take advantage of the influx of new US crude production into the Gulf Coast region. Crude production can now reach Magellan’s Houston distribution network by pipeline from the West Texas Permian Basin, the South Texas Eagle Ford basin as well as from Western Canada, North Dakota and the Rockies via the Midwest Cushing hub and the Seaway pipeline to Houston.

The Magellan East Houston crude storage and distribution terminal (the terminal is called “East Houston” – that’s not the name of a fashionable suburb of the Bayou City) boasts pipeline connectivity to oil refineries along the Houston Ship Channel, in Texas City and to other Gulf Coast refining complexes. Last week Magellan was named as one of the delivery points for a new Light Houston Sweet (LHS) crude blend that the price reporting agency Platts has started to assess on a daily basis in Houston. We will post a blog soon on the details of that new Platts assessment.

Feeding into the East Houston Terminal is the Magellan owned and operated Longhorn pipeline - recently reversed – that provides crude transportation from Crane, TX in the Permian. The Longhorn pipeline began to ship crude from the Permian in April of this year and is now moving between 90 Mb/d and 135 Mb/d, expanding to 225 Mb/d by the end of 3Q 2013. Longhorn capacity is already fully subscribed by Permian shippers and Magellan is currently trying to get regulatory approval to expand it by another 50 Mb/d for a total of 275 Mb/d.

Aside from the Longhorn pipeline, Magellan also has a 50 percent interest in the BridgeTex pipeline project that is a joint venture with Occidental. BridgeTex will provide 300 Mb/d of crude capacity from Colorado City, TX in the Permian, to Magellan’s East Houston terminal next year. The pipeline is currently under construction and expected online by mid 2014. Magellan said in June that capacity is about 50 percent subscribed by committed shippers so far and that they expect additional take-up before it comes online.

Takeaway capacity for growing Permian Basin crude production (1.4 MMb/d today – growing to 1.8 MMb/d by 2018) is currently finely balanced. New pipelines coming online this year and next will provide more than enough space to takeaway forecast production out to 2018 (see Rock the Basin – Opening the Permian Crude Floodgates). The Longhorn and BridgeTex pipelines will make Magellan the largest crude shipper from the Permian to the Gulf Coast (the other major player is Energy Transfer Partners subsidiary Sunoco Logistics that owns the West Texas Gulf and Permian Express pipelines).  

Between them, the two Magellan operated Permian pipelines will deliver 525 Mb/d of crude into the company’s East Houston Terminal. The terminal has 2 MMBbl of crude storage capacity today and Magellan will finish the construction of another 1.4 MMBbl by the time the BridgeTex pipeline is completed next year. As we mentioned earlier, Platts has started assessing LHS crude for Houston delivery, with the Magellan terminal being one of the delivery points. Apart from being the receiving point in Houston for so much Permian crude, East Houston is also a good choice for a crude trading assessment because of the ease of delivery from Magellan to regional refineries. The map below shows the Magellan Houston distribution system. The East Houston terminal offers connectivity to refineries along the Houston Ship Channel including Shell Deer Park (340 Mb/d), Valero Houston (160 Mb/d), Lyondell Houston Refining (268 Mb/d), PRSI – Petrobras (117 Mb/d) and Exxon Mobil Baytown (584 Mb/d). Magellan has also built a pipeline link between East Houston and Genoa Junction that allows their customers to deliver crude to the Enterprise ECHO terminal where it can be blended with supplies delivered from the Enterprise Eagle Ford crude pipeline or originating from Cushing via the Seaway pipeline.

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