By BEN LEFEBVRE
Magellan Midstream plans to begin by 2013 its project to ship oil from increasingly productive south Texas fields to the refining belt along the US Gulf Coast despite lacking enough shipper interest to fill the line, the company said Tuesday.
Magellan plans to reverse the flow of its Longhorn fuels pipeline, currently shipping fuel from Houston to El Paso, and convert it to a crude oil pipeline.
The $245 million project is meant to bring crude oil from the growing Eagle Ford region in south Texas directly to refiners in Houston instead of shipping it to the country's main storage hub in Cushing, Okla.
The lack of pipelines able to transport crude oil from Cushing to the US refining belt along the Gulf Coast last year helped push prices for West Texas Intermediate crude nearly $30/bbl below its European counterpart, Brent crude.
The price disparity, and refiners' desire to gain access to the growing glut of Cushing WTI, helped spark multiple projects to bring Cushing crude to the Gulf.
Enbridge and Enterprise Products announced plans to reverse their 150,000 bpd, Cushing-to-Houston Seaway pipeline after Enbridge bought ConocoPhillips' share in the line for $1.15 billion in November.
TransCanada also plans to build a pipeline bringing oil from Cushing to the Gulf Coast as part of its controversial Keystone pipeline expansion.
Magellan formally announced in September it would pursue the Longhorn project but has so far not been able to win enough contracts to fill the pipeline with capacity, Magellan CEO Michael Mears said.
Competition for shippers is high as the Seaway reversal nears its planned June 2012 start date and TransCanada works to win approval of its controversial Keystone pipeline expansion, which would also bring Cushing crude to the Gulf.
"If all those pipes get built, it will be a competitive situation," Mears said during a conference call with investors.
The Longhorn line would have initial capacity of 135,000 bpd after conversion and reversal, Mears said during a conference call with investors.
Magellan could increase the line's capacity after start-up if enough interest is shown.
Magellan has decided against using part of a pre-existing line in the project, a move that would have cut the project cost but also reduced the pipeline's capacity.
Magellan earlier in the day posted fourth quarter profit of $110.3 million, up 25% from the year before.
The company expects gasoline shipments to rise 4% during 2012, reversing a downward trend in the fourth quarter of 2011.
Dow Jones Newswires