Construction on Fort Smith to Little Rock fuel pipeline now underway

A spokesman for one of the nation’s largest energy distribution and transportation companies told Talk Business & Politics that construction is underway on a fuel pipeline from Fort Smith to Little Rock that will bring gasoline into the state’s largest market.

Tulsa-based Magellan Midstream Partners said earlier this summer it was 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.

“We are on schedule and expect the pipeline system to be operational in mid-2016,” said Magellan spokesman Bruch Heine in response to an inquiry about the multimillion dollar project.

Magellan had previously announced in April 2014 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 it received sufficient commitments to proceed to the next phase for its potential pipeline to Little Rock through “open season” bidding, a Federal Energy Regulatory Commission (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.

After receiving strong interest in the project, 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.

Unlike a number of master limited partnerships that dominate the pipeline infrastructure, distribution and transmission sector of the energy industry, including Houston-based rival Kinder Morgan, Magellan has thrived in the low-cost environment that has pushed crude oil and natural gas prices to historic lows. In the company’s recent third quarter earnings report, the master limited partnership said it was increasing its expansion capital spending by $200 million to approximately $1.6 billion. That capital budget, which includes the Fort Smith to Little Rock pipeline project, targets $850 million in spending in 2015, $700 million in 2016 and another $50 million thereafter to complete its slate of construction projects.

At the same time, the Tulsa partnership said it is evaluating potential growth projects “well in excess of $500 million” in early stages of development as well as additional acquisition opportunities, both of which are not part of the current spending budget.

Magellan management has also raised its full-year 2015 distributable cash flow guidance by $40 million to $920 million, resulting in 1.35 times the amount needed to pay expected cash distributions for 2015. The Tulsa partnership said it is committed to its goal of increasing annual cash distributions by 15% for 2015 and at least 10% for 2016.

Magellan’s shares were off more than 4%, or $2.65 at $60.93, in frantic morning trading on Friday on the New York Stock Exchange. U.S. markets have been mired in a weeklong slump as the OPEC-induced crude oil slide has spilled into U.S. stocks and energy concerns.

On Thursday, prices for West Texas Intermediate, the benchmark U.S. crude, slid 83 cents to $35.93 per barrel on the New York Mercantile Exchange. That is lowest price since February 2009.