Enterprise Products Partners’ plan to end the shipment of diesel and jet fuel via pipeline to three Arkansas locations hit a snag last week after Murphy Oil Corp. asked a court to prohibit it.
Murphy Oil said Enterprise Products Partners of Houston and its affiliate, Enterprise TE Products Pipeline Co., are in breach of a 2006 agreement that said Enterprise would provide interstate pipeline service for Murphy Oil’s gasoline and diesel products, said Barry Jeffery, spokesman for Murphy Oil.
“We’re pursuing a contractual claim for them to deliver these shipments to us,” he said.
A 14-day restraining order, issued June 20, preventing Enterprise’s plan will be reviewed during a hearing Thursday before Union County Circuit Judge David F. Guthrie, the El Dorado News Times reported Tuesday.
Enterprise announced in May that it would stop diesel and aviation fuel pipeline service to El Dorado, North Little Rock and Jonesboro beginning July 1.
The company plans to reverse the flow of the pipeline and transport ethane from the Marcellus-Utica shale in the Northeast to the Gulf Coast, said Rick Rainey, spokesman for Enterprise.
He said the company plans to change the use of the pipeline because demand for the fuel has declined.
“There’s been an overall decrease in demand for products like diesel and jet fuel in the U.S. as a whole,” Rainey said. “The need for deliveries from the Gulf to the Midwest is just not what it was.”
He said demand has declined because more crude oil is being refined in the country and because of the increase in natural-gas production in the Northeast.
James Williams, an energy analyst who operates WTRG Economics near Russellville, said much of the natural-gas production in the Northeast has liquids in it - propane, butane and ethane - that are more profitable.
“They are probably going to make more money shipping ethane out than they will the diesel and jet fuel,” he said.
Williams said the reversal of Enterprise’s pipeline could restrict the sources of diesel and aviation fuel and increase the fuel’s transportation cost.
“We could just no longer provide a service and continue spending the money for that service when the demand for the product was declining,” Rainey said. “We’re not insensitive to the impact of the change, but our primary responsibility is to the efficiency of our pipelines and the impact on our business.”
Enterprise currently transports diesel and aviation fuel along an 800-mile route, beginning with a 14-inch pipeline from Beaumont, Texas, to El Dorado.
In El Dorado, the pipeline’s diameter increases to 16 inches for shipments going to Jonesboro and North Little Rock, and it continues to Ohio, Rainey said.
Enterprise will use a parallel 20-inch pipeline that primarily transports gasoline to also ship diesel fuel.
Enterprise will also ship diesel to North Little Rock and Jonesboro via a refinery in El Dorado instead of transporting it from suppliers in Texas. The refinery is operated by Lion Oil Co., which is owned by Tennessee company Delek U.S Holdings Inc.
On May 31, the Federal Energy Regulatory Commission accepted Enterprise’s plans to reverse the flow of its pipeline, stating that it had no jurisdiction over the change.
In a filing with the commission, several Arkansas companies, including Murphy Oil, and the Arkansas attorney general’s office asked the commission to intervene.
Murphy Oil said in the filing that it was protesting the pipeline change because the move would violate the agreement between the companies, and that Murphy Oil relied on Enterprise to provide service of refined products from the Gulf Coast to the Midwest on the 20-inch main line.
“If they stop doing that, it limits our sources of supplies,” Jeffery said.
He said the company would have to find alternative sources of diesel fuel for its terminal in Sedgwick, which supplies fuel to Northeast Arkansas.
The Arkansas State Chamber of Commerce said in the filing that the change would disrupt the steady supply of fuel to the Little Rock Air Force Base in Jacksonville and to Bill and Hillary Clinton National Airport/Adams Field.
It would take 10 tank trucks a day from Shreveport to supply the base, said Irene Smith, a spokesman for Defense Logistics Agency Energy, in an e-mail. The base contracts its aviation fuel from the agency.
“These types of delivery mode changes are fairly routine and generally do not cause support disruptions to our military customers,” she said.
Smith said transporting the fuel by truck instead of pipeline would add 10.5 cents per gallon to the fuel’s cost.
Dennis Fitzgerald, president of Knox Nelson Oil Co. in Pine Bluff, said there is also concern that the Lion Oil refinery might not be able to move diesel fuel to North Little Rock.
Fitzgerald said some fuel suppliers are starting to buy more trucks because they are planning on having to go farther to buy diesel fuel.
Keith Johnson, vice president of investor relations for Delek, said the company was aware of Enterprise’s decision but said he could not comment further.
Business, Pages 25 on 06/26/2013