Magellan sees heavy demand for U.S. Gulf condensate splitters

HOUSTON Thu Nov 21, 2013 4:05pm EST

HOUSTON (Reuters) - The U.S. Gulf Coast may need six to eight facilities to turn condensate - a very light form of crude oil - into exportable products and handle a glut of output from the Eagle Ford field in Texas, Magellan Midstream Partners LP (MMP.N) Chief Executive Michael Mears said.

Splitters, or a very basic distillation tower, give condensate a minimal level of processing. Without that processing, condensate is considered crude oil under U.S. law and therefore cannot be exported.

Mears said Magellan was interested in investing in splitters, but did not say how many it wanted.

"We think there could be the need for up to six to eight splitters on the Gulf Coast to process all the condensate that's projected to come out of the Eagle Ford."

"We're interested in that just from a standalone investment standpoint," he said. "We think the Eagle Ford is going to be significantly long on condensate, and you can't export it unprocessed today."

He said the most important products of splitters are naphthas and that people in the industry are especially interested in building splitters around Corpus Christi, Texas, where there is a lot of infrastructure already in place.

"There are a number of things that come off a splitter but the two big ones are light and heavy naphthas," he said.

The CEO of Magellan, a pipeline company that owns the longest refined petroleum products system in the United States, said companies should prepare for an eventual lifting of the government's ban on exporting domestic crude. But he cautioned there is no certainty the rule will be lifted.

"I think it would be wise to be prepared for that ... You've got to be careful, though, since that is entirely a step function decision. It's either yes or no. You want to be careful not to over-invest in that or over-prepare for it."

Mears said smaller steps to loosen the ban may be taken before it is lifted entirely.

Mears also told Reuters he is open to investing in crude-by-rail assets, but so far Magellan has deemed available assets too pricey.

"We're not opposed to crude by rail. We believe in certain instances it's here to stay. We just haven't found the right opportunity to invest."

Many companies are increasingly using rail to move crude from booming domestic oil fields because pipeline infrastructure is lacking. Refiners say crude-by-rail offers them flexibility when choosing what types of crude to run through their plants.

(Editing by Matthew Lewis)