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Despite US oil boom, some states fear fuel scarcity.

THE US oil and gas renaissance that has bestowed unexpected prosperity on states from North Dakota to Pennsylvania and boosted distillate production to a record high in the Midwest is also causing pockets of fuel scarcity: just ask Arkansas.

Farmers, truckers and politicians there are up in arms over plans by Enterprise Product Partners to end deliveries on a key pipeline that ships diesel and jet fuel from Texas on July 1. Instead, Enterprise plans to reverse the line to ship ethane, chiefly used as a petrochemical feedstock, from the shale fields in Ohio and Pennsylvania to the Gulf Coast.

The Arkansas attorney general has appealed to federal regulators to intervene, local merchants warn of a "catastrophe," truckers fear a jump in prices and even a US Air Force base is stocking up on extra fuel.

The controversy is the latest sign of how energy and infrastructure companies are rushing to adapt to the production boom that no one predicted five years ago. And while the eventual result should be a more modern, efficient US fuel network, the changes are forcing some parts of the country to redraw decades-old supply lines.

"When you cut off supply, it's not as if there's a lot of extra supply just waiting to be used," says Ron Leone, executive vice president of the Missouri Petroleum Marketers and Convenience Store Association.

"You're going to have to scramble to make it up, and in that scramble there will be outages and shortages," he says.

Enterprise, which announced its plans for the so-called TE Products line in March, says demand for interstate shipments on the 230,000 barrels per day line has fallen sharply in recent years, and that it is not "commercially feasible" to invest an estimated $50 million to upgrade a parallel line.

Enterprise declined to say how much the pipeline was delivering on a daily basis now.

Local fuel groups argue it is an energy lifeline and that closing it will roil the local market, raising prices as fuel is fetched from further afield and sparking shortages when demand normally met by the pipeline shifts to other sources.

Arkansas, a state of 3 million people north of Louisiana and best known as the home of former President Bill Clinton, is not the first to see a darker side of the shale energy bonanza. Northeast states have also fretted over fuel supplies following the closure of several refineries, partly because they could not compete with inland rivals running cheap shale crude.

The reversal would have a "significant, damaging effect" on business, the Arkansas Attorney General's office says in an April 25 filing to the US Federal Energy Regulatory Commission (FERC), asking for Enterprise's plan to be rejected or at least suspended for seven months for an investigation to take place.

Enterprise declined comment on the filing.

The TE Products line runs 806 miles (1,297 km) from Texas via Arkansas to southeast parts of Missouri, Illinois, Indiana and Ohio.

Under the company's $1.5 billion Appalachia-to-Texas, or ATEX, project, it would reverse the pipeline and build an extension into Ohio and Pennsylvania to pump ethane gas, often produced alongside natural gas from shale reserves from the northern Utica and Marcellus plays, south to petrochemical producers on the Gulf Coast.

The plan emerges at a time when overall fuel supplies in the broader Midwest area are healthier than ever, with refiners running flat-out as a glut of discounted Canada and North Dakota crude pumps up profit margins, while demand is dimmed.

Distillate production in the PADD 2 region from Oklahoma to Michigan is at a record high, up almost 9 per cent since 2007, while demand has fallen by 8.6 per cent during the same span, according to data from the US Energy Information Administration.

But regional traders say that broad trend is irrelevant for a narrow corridor including Arkansas, about a third of Missouri, up to a third of Illinois and parts of southern Indiana and Ohio that rely on the TE Products line.

"I think it borders on being catastrophic," says William Fleischli, executive vice president of the Illinois Petroleum Marketers Association.

Tom Gabe, president and chief executive of Heritage Petroleum, an Indiana-based fuel distributor and shipper on the line, explained how customers on the TE Products line in North City, south Illinois, might now have to go 100 miles south to a different terminal Cape Girardeau, Missouri, to get fuel.

If demand for fuel from that other terminal suddenly doubles to 3,000 truckloads a week, local prices will have to adjust.

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Publication:Oil & Gas News
Geographic Code:1U3OH
Date:May 20, 2013
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