US midstream major Magellan will not proceed "at this time" with its plan to build a long-haul crude oil and condensate pipeline in Texas by late 2019 after it failed to garner shipper support to make the project commercially viable, spokesman Bruce Heine said late Wednesday.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
"The open season closed on March 1 and we have not received adequate commitments to proceed with the project at this time," Heine said in an email.
In response to growing production from the Permian and Eagle Ford shale oil plays in southern Texas, Magellan launched on December 1 an open season seeking shipper support for a pipeline that will carry various grades of crude and condensate from both basins to Corpus Christi and the Houston Ship Channel along with US Gulf Coast for domestic refining and exports.
The proposed project would include the construction of a roughly 375-mile, 24-inch diameter pipeline from Crane to a location near Three Rivers, Texas, providing shippers the option to ultimately deliver crude oil and condensate from Three Rivers to the Houston Ship Channel via a new 200-mile pipeline or to the Corpus Christi through a new 70-mile pipeline.
The pipeline system was targeted to have an initial capacity of at least 350,000 b/d, with Magellan keeping an option to increase to 600,000 b/d for each destination depending on market demand, the company said then.
Additional pipeline extensions are also being considered for Midland and Orla, Texas in the Permian Basin and Gardendale and Helena, Texas in the Eagle Ford Basin.
The pipeline was due to for start up by end 2019, Magellan said in December.
Heine did not indicate if Magellan has shelved plans to build the pipeline, but said the company is now evaluating joint venture options with stakeholders which will utilize Magellan's "significant" waterfront assets in Corpus Christi, Texas.
"We continue to believe our terminal in Corpus Christi is a natural landing destination for any pipeline originating in the Permian Basin. We currently own the land to build another 10 million barrels of storage there along with four new docks," he said.
Magellan already owns and operates a 3.5 million-barrel crude and condensate storage terminal and a 50,000 b/d condensate splitter at Corpus Christi.
The company is also the operator of two legacy crude oil pipelines -- the 400,000 b/d BridgeTex and the 275,000 b/d Longhorn -- that ship barrels from the Permian Basin to the Houston Ship Channel.
Magellan is targeting to add another 40,000 b/d of new throughput on its BridgeTex line by early 2019, Heine said.
However, the lack of shipper commitment comes at a time when fellow midstream players are forging ahead with new pipelines to accommodate growing Permian and Eagle Ford production that is seeking export outlets to particularly Europe and Asia from Corpus Christi and the Houston Ship Channel.
Permian output is projected to grow from an average 3.657 million b/d in the current year to 4.675 million b/d in 2019 and reach 5.266 million in 2020, according to S&P Global Platts Analytics.
Also, production in the Eagle Ford is projected to grow from 1.439 million b/d this year to 1.663 million b/d in 2019 and 1.792 million b/d in 2020, according to Platts Analytics.
Plains All American is currently carrying out permitting and procurement work to build a 585,000 b/d Cactus II pipeline, while ground has been broken by EPIC to build a 590,000 b/d pipeline by late 2019. Both pipelines will transport crude from the Permian and Eagle Ford to the Port of Corpus Christi and their construction will come at a time of anticipated concerns over a shortage in takeaway capacity from late 2018 onwards that will result in a widening of the West Texas Intermediate price differentials.
Permian light sweet crude WTI Midland edged 5 cents/b lower day on day to be assessed at WTI cash minus $2/b on Wednesday, Platts data showed.
--Ashok Dutta, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com