Progress flows for new expansion of Longhorn Pipeline

EL PASO, Nov 01, 2009 (El Paso Times - McClatchy-Tribune Information Services via COMTEX) -- MMP | Quote | Chart | News | PowerRating -- The new owner of the Houston-to-El Paso Longhorn Pipeline expects to complete expansion of Longhorn's storage terminal on the far East Side by the first quarter of next year, and spend the next two years trying to build a customer base.

Magellan Midstream Partners of Tulsa, a publicly traded partnership that owns and operates 9,400 miles of fuel pipelines, bought Longhorn in July for $350 million, which included $100 million of fuel inside the pipeline. It bought the pipeline from financially troubled Flying J Inc., a Utah-based truck stop and refinery operator that bought the pipeline in 2006.

Magellan had a contract to operate Longhorn for Flying J before buying the pipeline.

The company is constructing more storage tanks to increase storage capacity at Longhorn's El Paso terminal, 13551 Montana near Zaragoza Road, from 900,000 barrels to 1.3 million barrels, said Bruce Heine, a Magellan spokesman in Tulsa. Magellan is spending $25 million to expand the El Paso terminal and to connect the pipeline to a Magellan terminal in Houston, he said.

The storage expansion is aimed at providing "customers with additional flexibility in order to meet their market requirements locally and regionally," Heine wrote in an e-mail.

Magellan is the third owner of the 5-year-old pipeline, which has had a shaky start after a controversial birth.

The 700-mile pipeline, first proposed in 1995, was delayed for years by court battles over safety and environmental concerns by

the city of Austin, where part of the pipeline is located, and others, and by the loss in 2002 of one of its biggest partners. It was built for more than $300 million by a partnership, which included Exxon Mobil and BP (British Petroleum). It opened in late 2004 without any gasoline shippers.

It was supposed to bring lower-priced gasoline to El Paso, but that never materialized. El Paso continues to have some of the highest gasoline prices in Texas.

Andy Lipow, who operates Lipow Oil Associates, a Houston consulting firm for the oil refining and oil trading industries, said part of Longhorn's problem has been "the economics don't work to ship fuel from Houston to El Paso." But Magellan's extensive fuel distribution system coupled with a future pipeline connection to Mexico may boost Longhorn's use, he said.

PMI Services North America, a U.S. subsidiary of Pemex, the Mexican oil company, has been trucking fuel from the Longhorn terminal in El Paso. The company expects to complete a 49-mile pipeline from the Longhorn terminal into Juarez in the next six months. A PMI official in 2007 said it would use Longhorn to bring fuel from Europe after PMI's pipeline to Mexico opened.

Flying J, in a February announcement of its intent to sell the pipeline, reported the pipeline had "recently operated at or near its capacity," which it reported to be 72,000 barrels a day. But in March, the company reported in court documents that the pipeline operated at "significantly reduced levels" since December 2008 when Flying J filed for Chapter 11 bankruptcy protection.

Consultant Lipow said Flying J probably shipped a lot of fuel through Longhorn to supply its truck stops.

Magellan officials won't say how much fuel is going through the Longhorn pipeline now. Magellan's Heine said the pipeline can carry up to 90,000 barrels per day with the use of a chemical "flow improver."

When it bought the pipeline, Magellan officials said it would take up to two years to get a customer base built for the pipeline.

Magellan officials told an investors' conference in September that the company expected the pipeline to operate at about 40 percent capacity in Magellan's first year of ownership, and it expected usage to grow to at least 80 percent capacity by July 2014.

Vic Kolenc may be reached at vkolenc@elpasotimes.com; 546-6421.

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