Magellan Midstream Partners LP is evaluating alternative uses for its Longhorn crude pipeline from Texas’s Permian Basin, including converting it to carry other commodities like natural gas or refined products, the pipeline and storage company has said.
Pipeline operators’ shipping volumes have dipped due to lower production, forcing them to reduce rates to attract barrels to their pipelines. The COVID-19 pandemic slashed energy demand on the heels of a construction spree that added several build pipelines to carry crude out of the Permian, the top US shale field.
The 450-mile (724 km) Longhorn pipeline can transport up to 275,000 barrels per day of crude from West Texas to Houston.
CEO Michael Mears said he expects relatively flat volumes for a few years on the Longhorn and the Bridgetex crude pipelines, which can transport up to 440,000 bpd of Permian crude to the company’s East Houston terminal.
The margins on spot shipments from the Permian are currently “extremely low,” said Mears, who spoke at a virtual event hosted by Wells Fargo.
He added that he expects to see slow but steady growth over the next few years in Permian production, which should match the current pipeline infrastructure carrying oil out of the basin by 2024 or 2025.
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