HOUSTON (Reuters) - Magellan Midstream Partners LP (MMP.N) may expand its reversed Longhorn pipeline, which just last month started shipping crude oil from West Texas to Houston-area refineries, Chief Executive Mike Mears told analysts on Thursday.
He said shipper commitments were “significantly in excess” of the pipeline’s current 225,000 barrel per day capacity, and the company may increase that by 50,000 bpd at an estimated cost of $80 million.
It would take a year to 18 months to finish that expansion if and when Magellan decided to move forward, he said.
The reversed Longhorn pipeline from Crane, Texas, to Houston started shipping crude last month and will ramp up to its current capacity in the third quarter.
Crane is near the oil-rich Midland area in West Texas, where Permian Basin crude production has been surging. The pipeline is sending crude to Houston that had been flowing into the glutted U.S. crude futures hub at Cushing, Oklahoma.
Mears said during the company’s first-quarter earnings conference call that even as Longhorn and other pipeline projects to move West Texas crude to the U.S. Gulf Coast refining hub come online this year, continued growth in oil output suggests infrastructure will keep rushing to catch up.
“We think there is upside potential for more capacity,” he said. “That is one reason why we’re looking into expanding our Longhorn system.”
Shipper interest also exceeds that potential expanded capacity, Mears said.
Magellan had previously said it was considering a 70,000 bpd expansion on the Longhorn line. On Thursday, Mears said any expansion beyond 50,000 bpd will exceed the hydraulic capacity of the pipe.
“We wouldn’t be looking at a second expansion of Longhorn beyond 275(,000 bpd),” he said.
He also said shipper interest also has increased for Magellan’s joint-venture Double Eagle pipeline that will carry 100,000 bpd of condensate from the Eagle Ford shale oil play in Texas to Magellan’s terminal in Corpus Christi.
“Now that we are on the verge of putting that line into service, the interest is ramped up,” Mears said.
Reporting By Kristen Hays; Editing by Gerald E. McCormick