Magellan Arkansas Fuel Pipeline In Final Stages, Expected To Be Operational By Mid-2016

A spokesman with Magellan Midstream Partners said the Tulsa-based pipeline company is in the final stages of permitting and acquiring easements for a distribution system that is expected to bring some 75,000 barrels of refined petroleum products from Fort Smith into the Little Rock market.

The announcement comes more than a week after Houston-based Spectra Energy received approval from the Federal Energy Regulatory Commission (FERC) on June 1 to “abandon by sale” some 159 miles of a once thriving natural gas pipeline system that stretches across the Fayetteville Shale, overriding concerns from Conway Corp. and Central Arkansas landowners that the aging transmission line would later be used to transport petroleum products.

Magellan had previously announced in April 2014 that it was negotiating an agreement to use a portion of an existing third-party pipeline that would be connect to Magellan’s Fort Smith terminal and a newly-constructed pipeline that will flow into the Little Rock market.

At the time, Magellan said that it received sufficient commitments to proceed to the next phase for its potential pipeline to Little Rock through “open season” bidding, a FERC-mandated process to gauge the level of market interest by giving potential customers an opportunity to enter non-binding pacts for capacity rights that will be available on a particular project.

PROJECT TO BRING GASOLINE, DIESEL, JET FUEL INTO LITTLE ROCK MARKET
After receiving strong interest in the project, the lynchpin of Magellan’s proposal was to significantly boost the level of gasoline, diesel fuel and jet fuel that enters the Little Rock market, providing access to refined products from Mid-Continent and Gulf Coast refineries via Magellan’s Fort Smith terminal and extensive refined petroleum products pipeline system.

On Wednesday, Magellan spokesman Bruce Heine said the project is scheduled to be complete and operational in mid-2016.

“The project includes a combination of new pipeline and the utilization of an existing pipeline segment which is owned by an affiliate of Spectra Energy,” said Heine, director of government and media affairs for the Master Limited Partnership (MLP). “We will be constructing approximately 12 miles of new pipeline to connect our Fort Smith petroleum distribution terminal to the existing pipeline. In addition, we will add 38 miles of new pipeline to connect the existing pipeline (near Searcy) to distribution facilities in North Little Rock.”

Heine said the high-profile pipeline project will bring many benefits to the state of Arkansas.

“Along with construction jobs, increased tax revenue and other economic benefits, the completion of this project will reduce truck traffic on highways,” he said. “Reducing truck traffic will reduce exhaust emissions.”

He added: “Historically, refined products marketed in Central Arkansas were typically transported into the state via pipeline from the Gulf Coast. Magellan’s new Little Rock system is connected to both Gulf Coast and Mid Continent refineries. In other words, refineries in Oklahoma and Kansas will now have the ability to transport their refined products to Central Arkansas via pipeline.”

ARKANSAS PIPELINE, DISTRIBUTION PROJECTS COURTING CONTROVERSY
Still, Magellan’s announcement comes at a time when a number of pipeline and power and grid transmission projects are running into increasing opposition from varied sources, including environmental groups, landowners, municipalities and safe water advocates.

Although the Magellan project will flow west to east from Fort Smith to Little Rock, it is expected to transverse some of the same areas as the ExxonMobil’s Pegasus Pipeline once it enters the region near Conway.

The Pegasus pipeline ruptured in the Northwoods neighborhood of Mayflower in late May 2013 while carrying Canadian heavy crude oil from Illinois to Texas. It enters Arkansas from the northeast in Randolph County cuts a swath through parts of Faulkner, Pulaski and Saline County in Central Arkansas before exiting the southwest corner of the state in Little River County.

When the pipeline erupted more than two years ago, oil flowed through the Mayflower neighborhood, contaminating homes and yards, before entering a creek, wetlands and a Lake Conway cove. The spill volume has been estimated at nearly 3,190 barrels, or 134,000 gallons, officials said.

In April, ExxonMobil Corp. said it will pay nearly $5 million in state and federal civil penalties to resolve alleged violations of the Clean Water Act and state environmental laws stemming from the 2013 crude oil spill. The nation’s largest oil company also said it will pay $3.19 million in federal civil penalties and perform measures to improve pipeline safety and spill response.

The settlement also states that if the pipeline is reopened, ExxonMobil must pursue additional pipeline safety measures to help prevent future ruptures. That settlement is not part of a jury proceeding in Faulkner County against Irving, Texas-based oil giant brought by families affected by the oil spill.

The multi-state Clean Line wind power project is also fighting opposition from landowners in Arkansas and Oklahoma due to the eminent domain issues related to land acquisition for the project.

The U.S. Department of Energy has published a Notice of Application for the project requesting public comment on Clean Line’s environmental assessment application and supporting materials. At the behest of Arkansas’ congressional delegation, the DOE extended the deadline last week for public comments on that project to July 13.

Also, earlier this month, a two-mile section of the Arkansas River near Little Rock was closed to navigation following the rupture of a Spectra Energy natural gas pipeline near the city’s Bill and Hillary Clinton National Airport.

That spill elicited a response from the Arkansas Sierra Club decrying the growing number of pipeline projects. “As the number of pipeline accidents pile up in Arkansas, it is time for our state to start moving away from dirty and dangerous fuels. Step one should be stopping the construction of new dangerous pipelines currently proposed for Arkansas,” said Glen Hooks, director of the Arkansas chapter of the Sierra Club. “Pipeline ruptures in Arkansas are becoming commonplace – how many will it take before we, as a state, finally say ‘no’?”

FERC RULING OPENS DOOR FOR PROJECT TO BEGIN
While not mentioning those controversial projects, Heine said Magellan’s petroleum products venture includes a combination of new pipeline and the utilization of an existing pipeline segment. According to the June 1 FERC filing, the older pipeline is owned by Ozark Gas Transmission LLC, a subsidiary of Spectra that was purchased by the Houston-based MLP in 2010.

Meanwhile, the Spectra-Ozark application to abandon the former natural gas pipeline dovetails with its plans to lease the 20-inch pipeline system to Magellan as part of its proposed Fort Smith-to-Little Rock “refined petroleum productions transportation service,” the FERC filing notes.

“Ozark states that transportation service on the facilities proposed to be abandoned has declined due to a leveling off of production in the Fayetteville area, producer diversification away from dry gas production, and a significant increase in available capacity through transportation alternatives in the area, such as the Fayetteville Express Pipeline LLC (Fayetteville Express) and Texas Gas Transmission, LLC’s (Texas Gas) Fayetteville Lateral,” the FERC filing notes.

The FERC filing also shows that the Conway Corp. and the Conway County Regional Water Distribution District filed comments with federal regulators opposing the Spectra-Ozark application to abandon the pipeline system. Conway Corp. manages one of the few city-owned utility systems in Arkansas which provides electric, water, wastewater, cable, internet and telephone services to local residents.

“Conway urges the Commission to deny the application because the facilities Ozark proposes to abandon cross the headwaters feeding Conway’s primary drinking water source, Brewer Lake, and backup source, Cadron Creek,” the FERC ruling states. “Conway is concerned that the pipeline’s age and intended use as a petroleum products pipeline may increase the risk of a spill. Several landowners also expressed this concern.”

Jeff Matthews, spokesman for the Conway Corp., said that the local utility and city officials in the Faulkner County community have expressed opposition to the pipeline because approximately four miles of it are within the watershed of Conway’s water source – the James H. Brewer Lake.

“In addition, the repurposing of the pipeline from natural gas to liquid petroleum products presents a different risk within that watershed. Conway Corporation leadership met with representatives of Magellan and Spectra earlier this year to discuss their plan to safeguard the watershed and their proposed procedures are still under review,” Matthews said of the city-owned utility system.

However, FERC commissioners wrote that federal regulators “had no authority over easement reversions, if any, and no authority to adjudicate property rights disputes.”

“Whether Ozark or others need to acquire additional rights to use the existing easements for petroleum products transportation and what additional compensation the property owners may or may not be entitled to are questions for a court of appropriate jurisdiction,” the FERC ruling states.

FERC commissioners also noted that it issued a notice of intent (NOI) to prepare an environmental assessment for Spectra’s proposed abandonment of the Ozark pipeline project October 2014. The FERC staff received comments from the U.S. Army Corps of Engineers, Arkansas Natural Heritage Commission, Arkansas Game and Fish Commission, Arkansas Department of Environmental Quality, Arkansas Department of Health, the Chickasaw Nation, City of Conway, and several Central Arkansas landowners.

“The primary issues raised concerned potential environmental impacts of the future use of the pipeline after the abandonment,” the FERC ruling states. “Specifically, their concerns included the age and safety of the abandoned pipeline for oil transportation, impacts on surface waters resulting from potential oil spills, and effects of noise and emissions from pumping stations.”

In response to those concerns, FERC staff prepared an analysis as part of the environmental assessment that addressed myriad of issues, including geology, soils, water resources, wetlands, vegetation, fisheries, wildlife, threatened and endangered species. The assessment also looked into how the project would affect land use, recreation, visual resources, cultural resources, air quality, noise, safety and cumulative impacts, and alternatives.

The assessment was issued for a 30-day comment period and placed into the public record on February 27, 2015. “The commission received no comments on the (assessment),” FERC stated.

It was also noted in the FERC ruling that Commissioner Colette Honorable did not participate in the ruling by the five-person panel. Honorable, who was confirmed by the U.S. Senate to FERC in December, is the former chairman of the Arkansas Public Service Commission.

Heine told Talk Business and Politics that Magellan officials have met with the City of Conway to address questions related to the pipeline project. “Pipelines remain the safest, most reliable and coat effective mode of transportation for liquid energy,” he offered. Spectra officials did not reply to questions concerning the Magellan project.

On Thursday, Houston-based Consumer Energy Alliance (CEA), in conjunction with the state and Little Rock chambers of commerce and other trade and business groups, is expected to speak out publicly in support of the Magellan, Clean Line and other infrastructure projects.

CEA Executive Vice President Tommy Foltz, whose national group is also a leading advocate for the push to build the Keystone Pipeline, told Talk Business & Politics that these infrastructure projects were vitally important to the state and nation’s economic development and energy availability.