Energy Transfer's Mariner 1 pipeline to carry Midwest refined products to USAC

New York — Atlantic Basin refiners received another blow as US Midwest refiners encroach further into their territory with Energy Transfer's announcement it would repurpose part of its Mariner 1 pipeline to move refined products from the Midwest into eastern Pennsylvania.

"PA Access will utilize part of our Mariner East 1 pipeline to provide about 20,000 – 25,000 b/d of refined products from the Midwest supply regions through our Allegheny Access pipeline system into Pennsylvania and to markets in the Northeast," a company spokesman said Nov. 25.

"We anticipate a fourth quarter of 2020 startup for early volumes. We do not comment on information related to our commercial contracts beyond what is public," the spokesperson added.

The 70,000 b/d Mariner 1 pipeline is part of Energy Transfer's larger Mariner East system. Since 2014, it has been transporting ethane and propane from Marcellus Shale play, which straddles Ohio and Pennsylvania to its Marcus Hook, Pennsylvania, terminal for export.

But with the completion of the 345,000 b/d Mariner 2 pipeline by the end of the year, Energy Transfer plans to move the NGL volumes onto that adjacent line and convert a portion of the 8-inch Mariner I line to move refined products.

"The portion of the 8-inch line that we're converting, that will be moving refined products," said Marshall McCrea, Energy Transfer's chief commercial officer on the Nov. 5 results call.

"That will be brand-new revenue that we have never received new business where we'll be able to benefit from the arbitrage or the spread between the Chicago market and the New York market really on a monthly basis, wherever the highest price for gasoline is we'll be able to buy directly move either direction," he added.

McCrea said the project will require "minimal capital" and will add "significant revenue and synergies with our refined products pipeline and terminal assets" and expected "early volumes to be able to flow from Ohio into Pennsylvania and to upstate New York markets."

Laurel redux

When it comes online, Energy Transfer's Pennsylvania Access system will be the second refined product pipeline in two years to bring Midwest gasoline into the region.

Last October, Buckeye began moving 40,000 b/d of gasoline and diesel east from its Midwest product pipeline system through its Laurel system into the central Pennsylvania market, after reaching settlement with refiners Monroe Energy, Philadelphia Energy Solutions and other terminal operators and distributors who feared competition from cheaper Midwest refineries.

The decision to close the 335,000 b/d Philadelphia Energy Solutions plant in August 2019 after a fire increased the need for more supply, and helped increase the region's refining margins.

USAC Bakken cracking margins averaged $6.99/b for the fourth quarter of 2019 compared with the $4.26/b so far in the fourth quarter of 2020, according to S&P Global Platts Analytics margin data.

Midwest refiners are hamstrung by geography. While they have easy access to cheap Canadian and US Midcontinent crudes and a number of large, sophisticated refineries in which to process it they make more gasoline than the region requires. And their midcontinent location does not offer much in the way of export opportunities, putting a cap on margins. Midwest Bakken cracking margins averaged $12.11/b in the fourth quarter of 2019 – almost double of their USAC counterparts -- and so far this quarter are averaging $6.17/b, Platts Analytics data showed.

Possible PA Access expansion

Energy Transfer said the PA Access/Mariner 1 is easily expandable to 50,000 b/d of refined products from Midwest refineries in Michigan and Ohio via its Allegheny Access pipeline. PA Access/Mariner 1 pipeline connects with Allegheny Access pipeline in Delmont, Pennsylvania, just east of Pittsburgh and continues east to Montello, Pennsylvania, near Harrisburg.

From there, it accesses the Philadelphia market as well as Sunoco legacy pipelines to upstate New York markets including Buffalo and Rochester.

Since Laurel began moving refined product east, US Atlantic Coast refiners and their counterparts in Northwest Europe have been suffering, with falling demand from lack of personal mobility from the coronavirus pandemic hitting their less sophisticated refineries hard.

USAC refinery utilization fell to 45.2% in April, while Midwest plants were less impacted running at 69.9% of capacity, Energy Information Administration data showed.

Refinery runs in both regions have picked up since then. USAC refinery utilization averaged 68.5% of capacity for the last four weeks ended Nov. 20, most recent Energy Information Administration data showed, while Midwestern plants ran at 81.6% of capacity during the same period.

Besides the closure of PES, which took 335,000 b/d of refining capacity off the market, PBF announced it would close an additional 85,000 b/d of refinery capacity at its 160,000 b/d Paulsboro, New Jersey, due to weak demand by the end of the year. In addition to shutting the smaller of two crude units, PBF will process Paulsboro intermediates at its nearby 182,200 b/d Delaware City, Delaware, refinery, which will increase the run rates for its East Coast system.