Magellan’s Fort Smith-to-Little Rock refined products pipeline now in operation

Central Arkansas’s fuel market received a big boost after the Fourth of July holiday when Tulsa-based Magellan Midstream Partners quietly began operation of its much-anticipated pipeline project that will deliver up to 75,000 barrels per day of gasoline, diesel fuel and jet fuel into the state’s main transportation hub.

Magellan spokesman Bruce Heine confirmed Wednesday (July 13) that the Tulsa pipeline giant has commenced service on the 200-mile, 12-inch diameter pipeline capable of transporting fuel processed at Gulf Coast and Midwest refineries into the state across the Arkansas River Valley east to Little Rock.

“We began transportation services on the Fort Smith to Little Rock pipeline on July 5,” Heine said of project that has been in the works for several years.

In March, Heine told Talk Business & Politic said the Tulsa-based pipeline company was in the final stages of permitting and acquiring easements for a distribution system, and that the company expected to complete construction and be in operation by mid-summer of 2016.

After receiving strong interest in the project through the Federal Energy Regulatory Commission’s open season bidding process two years ago, 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.

But the project was not without controversy. Just after a year ago, Houston-based Spectra Energy received approval from the 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.

Despite those concerns that the pipeline would cross Conway’s main water source, the James J. Brewer Lake watershed, FERC officials eventually ruled a year ago that federal regulators had “no authority over easement reversions, if any, and no authority to adjudicate property rights disputes.”

Magellan had previously announced in April 2014 that it was negotiating an agreement with Spectra 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.

Heine said earlier this year that Magellan constructed approximately 12 miles of new pipeline to connect the Fort Smith petroleum distribution terminal to the existing pipeline. In addition, the Tulsa master limited partnership added 38 miles of new pipeline to connect the existing pipeline (near Searcy) to distribution facilities in North Little Rock.

Previously, Magellan officials have said the pipeline project will bring many benefits to Arkansas. Besides construction jobs, increased tax benefits and potentially lower fuel prices in the Little Rock market, the project is expected to reduce the volume of truck traffic that delivers gasoline and other fuel products from out-of-state refineries to local fuel distributors and gas stations.

“Historically, refined products marketed in Central Arkansas were typically transported into the state via pipeline from the Gulf Coast,” Heine said in March. “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.”

In addition, Magellan’s will also provide a new fuel source for aviation and trucking interests who lost their major supply of jet and diesel fuel after Houston-based Enterprise Products Partners announced plans in May 2013 to cease providing refined product by pipeline to Little Rock and Jonesboro.

In its July newsletter last week, the Arkansas Oil Marketers Association mentioned EPP’s decision to exit the Central Arkansas market three years ago. According to AOMA officials, jet fuel will be available in the second quarter of 2017 at one of Magellan’s storage and distribution terminals in Little Rock.

The Arkansas trade group, which represents petroleum wholesalers and convenience store operators across the state, also noted that Magellan’s new pipeline will increase price competition in the Little Rock market, which now receives most of its fuel from Delek’s 80,000 per day refinery in El Dorado. Publicly-traded Delek U.S. Holdings, the owner of Mapco convenience stores, purchased the refinery from Lion Oil in early 2011.

To date, Magellan officials have not publicly revealed the final total costs of the Arkansas project, although earlier estimates were tabbed at about $150 million-$175 million. However, in a securities filing late last year, 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, targeted $850 million in spending in 2015, $700 million in 2016 and another $50 million thereafter to complete its slate of construction projects.

At the end of the first quarter, Magellan upped its 2016 capital spending budget to $800 million, and added another $100 million to slate of construction projects that are expected to be completed in 2017. The Tulsa pipeline partnership also said it continues to evaluate well in excess of $500 million of potential growth projects in earlier stages of development and acquisition opportunities, “all of which have been excluded from the partnership’s spending estimates at this time.”

Magellan and Delek are both expected to release their second quarter earnings report in early August.