UPDATE 2-Magellan joins Trafigura to build condensate splitter in Texas

Mon Mar 31, 2014 5:46pm EDT

Related Topics

* $250 million project slated to start up second-half 2016

* Magellan plans 50,000 bpd capacity, can double that if needed

* Trafigura signs fee-based, take-or-pay agreement for 50,000 bpd

* Targa Resources also planning smaller, $115 million splitter near Houston (Adds details on Targa Resources' splitter project)

By Kristen Hays

HOUSTON, March 31 (Reuters) - Magellan Midstream Partners LP has linked up with commodity trader Trafigura AG to build a $250 million facility at its south Texas terminal that will process a very light form of crude oil so it can be sold or exported, Magellan said on Monday.

Last year, Magellan said it was on the hunt for a partner to build a condensate splitter at its Corpus Christi marine terminal, particularly after its joint-venture 100,000 barrels per day (bpd) Double Eagle condensate pipeline started up in 2013. Double Eagle, with partner Kinder Morgan Energy Partners , moves Eagle Ford condensate to Magellan's Corpus terminal.

On Monday, Magellan said it had forged a take-or-pay agreement with Trafigura for the 50,000 bpd splitter project, and said the company could build a second 50,000 bpd splitter if demand warrants. Pending permit approvals, the project will start up in the second half of 2016.

Later on Monday, Targa Resources Partners LP also announced plans to build a smaller $115 million, 35,000 bpd condensate splitter project at its Channelview Terminal on the Houston Ship Channel.

Like Magellan, Targa said it was working with a customer - in Targa's case, Noble Group - to support the project with a long-term, fee-based contract. Targa said the project was expected to start up about 18 months after the necessary permits are approved.

A condensate splitter "splits" the very light oil into different components, such as naphtha and distillates, which can be blended into refined products, sold or exported.

About half of Eagle Ford's growing output is condensate, a very light form of crude oil that has limited demand from refineries and petrochemical plants. The U.S. Energy Information Administration projects Eagle Ford output to reach 1.36 million bpd in April.

Under current U.S. law, condensate is considered crude oil and cannot be exported without a license unless it has undergone at least minimal processing. Surging onshore output of crude oil has prompted some energy companies to call for a lifting of U.S. restrictions on crude oil exports.

But any policy shift may take years. Magellan Chief Executive Mike Mears late last year told Reuters that he saw demand for as many as six to eight condensate splitters along the U.S. Gulf Coast to turn condensate into exportable products.

In addition to the splitter, Magellan's project will include more than 1 million barrels of new storage, dock improvements and two more truck bays at Magellan's terminal and a pipeline connection to Trafigura's nearby storage and marine terminal.

Targa said that once its splitter is built, its Channelview terminal will handle condensate as well as asphalt, blendstocks, marine diesel oil, used motor oil, vacuum gas oil and crude oil.

OTHER PROJECTS

Trafigura also has another deal to take incoming crude and condensate.

Last year, Trafigura forged a 10-year deal with pipeline company Energy Transfer Partners to take 100 percent of throughput from its Rio Bravo pipeline, an 84-mile (135 km) natural gas line from McMullen County to Corpus Christi, being converted to move crude and condensate.

In a February investor presentation, Energy Transfer described the Rio Bravo project, saying it would connect to a Trafigura "splitter and terminal" in Corpus Christi.

Rio Bravo is slated to start up late in the third quarter or early fourth quarter of this year.

Trafigura spokeswoman Marisol Espinosa declined to say whether Trafigura had planned its own splitter, but noted that investing in a facility with crude and condensate processing capability was "certainly one of various options we have considered."

Kinder Morgan is building two 50,000 bpd splitters at its Houston Ship Channel complex, with the first slated to start up this summer and the second in early 2015. The company expects to add a third 50,000 bpd facility as well.

Other companies planning splitter projects along the Gulf Coast include Phillips 66, Martin Midstream Partners and privately held Castleton Commodities International. (Additional reporting by Ashutosh Pandey and Swetha Gopinath in Bangalore; editing by Terry Wade, Maju Samuel, Matthew Lewis and G Crosse)

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