* Line to supply distillates after separate Enterprise line
* Magellan to finish review of cost and timing by mid-summer
By Kristen Hays
HOUSTON, May 23 Magellan Midstream Partners LP
may build a pipeline extension connecting its network to
its terminals in central Arkansas, where the imminent shutdown
of a separate distillate pipeline has raised serious concerns
about supply in the state.
Magellan said on Thursday that the company was "exploring
the feasibility" of building a new pipeline to connect its
network in Fort Smith, at the western edge of Arkansas, to its
terminal in Little Rock. The 10- to 12-inch (25-30 cm) wide line
would move up to 75,000 barrels per day of gasoline, diesel and
jet fuel into the area.
Magellan's announcement comes five weeks before Enterprise
Products Partners plans to shut down interstate
shipments on its 230,000 bpd TE Products distillate pipeline
that runs through Little Rock.
The 806-mile (1,297-km) line, which carries ultra-low sulfur
diesel and jet fuel from Texas through Arkansas to southeast
parts of Missouri, Illinois and Indiana, will be converted to
move ethane from Pennsylvania to Texas to feed petrochemical
demand as part of Enterprise's $1.5 billion Appalachia-to-Texas
Enterprise says distillate flows on the line are too low to
justify spending $50 million that would be needed to modify a
parallel gasoline and natural gas liquids pipeline to carry
distillates as well.
The company's plan emerged at a time when overall fuel
supplies in the broader Midwest area are healthier than ever,
with refiners running full-out on a glut of cheaper inland
domestic and Canadian crude that pumps up profits.
But the Arkansas Attorney General's office is challenging
the shutdown, saying it will have a "significant, damaging
effect" on business in the state.
Other challengers include airlines that operate at the Bill
& Hillary Clinton National Airport in Little Rock, and the
Arkansas Oil Marketers Association (AOMA).
Those challenges are before the U.S. Federal Energy
Steve Ferren, executive vice president of the AOMA, welcomed
news of Magellan's potential project.
"We hadn't been able to identify how much the shortage would
be with the Enterprise change, but if there is a shortage, that
would mean an opportunity for someone to come in there," he said
on Thursday. "I'm glad to hear Magellan's looking into it."
Magellan would not specify whether the company was
considering the project in response to the pending Enterprise
However, Magellan noted that its terminal complex in Little
Rock is currently supplied by a third-party pipeline, and that
the expansion of its system to include a new line would give
customers "flexibility to adapt to changing market conditions"
in Little Rock.
Magellan said the company was evaluating cost and timing of
the project may launch an open season by mid-summer to formally
gauge shipper interest.
The Arkansas Attorney General's office did not respond to
requests for comment on Magellan's announcement. But the office
has asked the FERC to direct Enterprise to keep shipping
distillates on the line or suspend the shutdown for seven months
so the state can investigate potential fallout.
"The proposed cessation of transportation service for
the identified fuels would have a significant, damaging effect
on the markets in Arkansas that are currently served by
Enterprise," the attorney general's office said in a filing with
the FERC earlier this month.
In a letter to the FERC filed last week, the Arkansas State
Chamber of Commerce said the line "serves as the backbone for
supply" of diesel and commercial and military grade jet fuel,
and the shutdown "will have a catastrophic impact to Arkansas."
In response, Tom Zulim, Enterprise's group senior vice
president of regulated businesses and refined products, said in
an affidavit filed with the FERC on Tuesday that demand for
interstate shipments on the line had declined significantly in
The affidavit said that from 2010 to 2012, non-Arkansas
demand for distillates fell by more than 40 percent, and demand
for jet fuel declined by 42 percent. The affidavit did not
specify actual volumes, which Enterprise will not disclose.
Zulim said in the document that intrastate shipments within
Arkansas from the single refinery in the state - Delek U.S.
Holdings' 83,000 bpd plant in El Dorado - to in-state
terminals will continue on the 20-inch line in addition to
gasoline and NGLs.
However, that refinery makes gasoline and diesel, but not
jet fuel - leaving the Bill & Hillary Clinton National Airport
and the Little Rock Air Force Base to truck in more fuel at a
higher transportation cost.