The Stocks of Magellan – Circumnavigating Crude Oil Storage and Distribution

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.

This is Part 4 in our blog series covering crude oil terminals in the Gulf Coast region. In Part 1 (see Echo and the Blending Men) we looked at the new 6 MMBbl Enterprise ECHO crude terminal. In Part 2 (see Nederland Crude Wonderland) we looked at the 22 MMBbl Energy Transfer Partners/Sunoco Logistics Nederland Terminal at Port Neches between Beaumont and Port Arthur. In Part 3 (see Crude Accommodation at the Oiltank Inn) we covered Oiltanking Houston’s 12 MMBbl terminal in the middle of the bustling Houston Ship Channel refining center.

This time we turn our attention to Magellan Midstream Partners LP, another Master Limited Partnership (MLP) that owns assets originally belonging to Williams Energy. Just two years ago, Magellan could comfortably have been described as a refined products distribution company with a network of 50 terminals and 9600 miles of pipelines stretching through the center of the US from Grand Forks, ND to Houston, TX. During 2011 about 77 percent of the company’s operating margin came from the refined products pipeline system. In 2010 however, Magellan made a strategic purchase from BP of 7.8 MMBbl of crude oil storage in Cushing, OK as well as pipelines linking several refineries in Houston and Texas City. Since that asset purchase, Magellan’s has concentrated its expansion investment on crude oil storage and distribution. By the end of 3Q2012 Magellan’s crude assets still only represented 10 percent of the company’s operating margin but 85 percent of their $1.3 B expansion budget is devoted to expanding these crude oil assets.

Magellan’s Gulf Coast crude assets are a mixture of pipelines and storage facilities grouped around three centers of activity – Cushing, OK (technically not the Gulf Coast, we know – but bear with us), East Houston and Corpus Christi. These three centers and the connections between them are designed to put Magellan in a strong position to benefit from the flood of new crude production from Western Canada, North Dakota, the West Texas Permian Basin and the Eagle Ford in South Texas that will bring more than 3 MMb/d of new crude into the Houston Gulf Coast region during the next two years.

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