Magellan Midstream Sees Lower Fuel Pipeline Volumes for Rest of 2020

NEW YORK—Magellan Midstream Partners LP said on July 30 its refined products pipeline volumes are expected to decline in the second half of this year as fuel demand remains depressed due to the pandemic.

Global oil demand plunged by about 30% in April as coronavirus-related lockdowns restricted travel worldwide and sent oil prices crashing.

Average base refined products pipeline volumes is expected to fall 6% for gasoline, 12% for distillate and 40% for aviation fuel compared to the second half of 2019, excluding the impact of expansion projects, Magellan said.

During the second quarter, lower drilling activity reduced distillate transportation volumes, CFO Jeff Holman said on an earnings call.

As oil prices collapsed, U.S. producers have slashed spending and curbed new drilling. The U.S. oil and gas rig count, an early indicator of future output, fell to an all-time low of 251 last week.

Magellan said its West Texas refined products pipeline expansion began operations on July 1, with an additional 75,000 barrels per day (bbl/d) of capacity now available. The related new refined products terminal in Midland, Texas, also began service this week, the company said.

The expansion of the Saddlehorn crude pipeline continues to progress, with an additional 100,000 bbl/d of capacity expected to be available by the end of 2020.

The Saddlehorn pipeline is currently capable of transporting 190,000 bbl/d of crude and condensate from the Denver Julesberg and Powder River shale basins to Cushing, Okla., the delivery point for benchmark U.S. crude futures.

Crude operating margins fell $34.9 million to $128.3 million and transportation and terminals revenue decreased $26.5 million in the second quarter in part due to lower third-party spot shipments on the Longhorn crude pipeline.

The spread between oil prices in the Permian basin and Houston was not wide enough to encourage spot shipments on the line, Magellan said.