Corey Paul, The Odessa American, Texas
The BridgeTex pipeline is “nearing startup” and on track to begin shipping crude to the Gulf in the middle of the third quarter this year, officials with Magellan Midstream Partners told investors on Tuesday.
The pipeline, with 300,000 barrels of daily crude takeaway capacity, is a joint operation between Magellan Midstream Partners and Occidental Petroleum, each spending about $600 million on the project. Oil and gas industry experts the pipeline to help relieve the blowout between prices in Midland and in Cushing, Okla., the trading and storage hub where the West Texas International benchmark is determined.
Magellan’s chairman and CEO Magellan Michael Mears said that between the BridgeTex and unaffiliated projects underway, infrastructure is poised to provide “adequate takeaway capacity from the Permian Basin to match the production growth.”
“So at this point in time we are not envisioning any long-haul takeaway project” by Magellan in the Permian,” Mears said. Company officials are, however, looking “to expand on the origin ends of our pipelines in the Permian Basin.”
Mears said the company is completing tank and pipeline work and expects to begin initial line fill in the late second quarter. The “first real financial benefit” of BridgeTex to the company should come in 2015. About 90 percent of the project costs are committed.
Magellan is also expanding its existing Longhorn Pipeline from Crane to Houston by 50,000 barrels of daily crude takeaway. That project, bringing the Longhorn to a total 275,000 barrel capacity, is also expected to come online in mid-2014.
Permian crude is trading at an average discount of about $8 to the West Texas Intermediate, a disparity existing for several months and reaching as high as about $11. Experts attribute that blowout in part to seasonal refinery maintenance but also congestion amid increasing oil production.
Midland crude is selling by about $10.50 per barrel of oil less than the Louisiana Light Sweet price of the Gulf.
Mears said Magellan is still evaluating the balance between shippers who make long-term commitments to use the BridgeTex and space for spot shipments that are more expensive. But he said there is a tendency to favor the long-term commitments.
“Volatility in the market is nice, but everybody knows that can change pretty rapidly in our business,” Mears said.
Other major pipeline projects are expected to come online next year to take Permian Basin crude to the Gulf: the Plains Cactus pipeline adding about 200,000 barrels of takeaway capacity and the Sunoco Logistics Permian Express II, also adding about 200,000 barrels of capacity.
Typically pipelines take time to build up, so how quickly the BridgeTex project will bring relief to the price blowout is difficult to predict, according to a recent interview Sandy Fielden, an analyst with RBN Energy.
Fielden counts about 12 gathering-system projects to move crude to regional hubs where the major pipelines are, representing an effort in the mean time by the oil and gas industry to beef up takeaway. Among them is a Cline Shale pipeline owned and operated by Occidental stretching from Barnhart to Colorado City and able to carry about 75,000 barrels a day that can then move to Cushing or the Houston area via larger pipelines.
During the conference call, Edward Rowe of Raymond James asked if the company planned separate infrastructure to handle condensate, citing information from oil and gas producers in the Permian that the area is producing more. Mears said there were no such plans but that Magellan changed the spec of the Longhorn in recent months with consent from shippers to accept lighter crude.
Much of the conference call focused on first quarter financial results and other projects in Little Rock and Corpus Christi. Officials reported a record quarterly operating profit of $275.1 million for the first quarter of 2014, representing an increase of $136.6 million, or nearly double, those in the first quarter of 2013.
Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.