The nation's shale drilling boom is starting to change the pipeline landscape in Arkansas.
Three pipeline projects have either been implemented or proposed for the state in the past year as companies invest in the infrastructure needed to move oil and gas from the country's bountiful shale areas to markets and refineries.
"There's a lot of infrastructure building going on," said Sandy Fielden, an energy analyst for RBN Energy LLC. "Basically, there's significant build-out of pipelines in the process of reconfiguring the system to handle new sources of crude."
The changes include Enterprise Products Partners' decision to halt some deliveries of refined products to central Arkansas, Magellan Midstream Partners LP's plans to build a new refined fuels pipeline to serve the Little Rock-area market and Plains All American Pipeline LP's proposal for a new pipeline to ship raw crude across the state to Memphis.
The projects come as drilling, especially for oil, has flourished in locations where there are few, if any, pipelines to move liquid resources to refineries for processing, analysts said.
Oil production in the United States is projected to increase from 7.5 million barrels per day in 2013 to 8.5 million barrels in 2014 and is expected to continue to grow to 9.3 million barrels per day in 2015 -- the highest level since 1972, according to the U.S. Energy Information Administration.
The agency said the growth in domestic crude production has led to a drop in petroleum imports. The Energy Information Administration said imported petroleum and other liquids will meet 22 percent of domestic demand in 2015 -- the lowest level since 1970 -- down from 33 percent in 2013.
"Pipeline infrastructure has struggled to keep up with the increase in production," said Jim Kahler, senior energy analyst for Bentek Energy, a branch of Platts.
Now that is beginning to change.
"The market forces are now creating the situation where we're going to see these pipelines get built," said Phil Flynn, energy analyst for the Price Futures Group in Chicago.
The Plains All American line is one of those pipelines. The proposed 440-mile pipeline would deliver sweet crude from the company's terminal in Cushing, Okla., to Valero Energy Corp.'s refinery in Memphis. The facility, which serves eastern Arkansas and Memphis, can process 195,000 barrels per day.
The pipeline, which will have the capacity to transport up to 200,000 barrels per day, would run across north-central Arkansas and carry oil primarily from the Bakken Shale in North Dakota and the Permian Basin in Texas.
The line is needed because Valero has curtailed oil imports from overseas as a result of amplified drilling in the United States, company spokesman Bill Day said.
Because it has no direct pipeline from Cushing to Memphis, Valero is moving Bakken Shale oil to its terminal in Louisiana by rail, then moving it by pipeline to Memphis.
"With all of the developments of shale drilling and the new production of North American crude oil, we were able to replace imported crude oil with domestic crude oil," Day said. "If you just build a pipeline from Cushing to Memphis, it just makes a lot more sense."
Cheaper, safer pipelines
The nation's lagging pipeline infrastructure means oil shipments by rail are on the rise.
Rail shipments from the Bakken Shale alone have jumped from 311,000 barrels per day on about five trains in 2012, to 590,000 barrels per day on nine trains per day in 2013, Kahler said.
Forecasts have an average of 691,000 barrels per day moving on about 11 trains per day this year, he said.
Derailments involving crude-carrying rail cars have caused some concern. In 2013, accidents in Alabama and North Dakota caused fires and spilled hundreds of thousands of gallons of oil. In July 2013, a fire caused by a derailment in Quebec killed 47 people. In May, a train that derailed in Lynchburg, Va., spilled 30,000 gallons of crude into a river.
"In the longer term, shipping by pipeline is cheaper and safer," Kahler said.
Pipelines are expensive to build but have lower operating costs. Companies want to know that an exploration area will be fruitful before investing in new infrastructure, Kahler said.
Moving volatile oil from the Bakken Shale by pipeline is safer than transporting it by truck or rail, analysts said.
"You much rather have that moving through a pipeline than through rail," Flynn said, adding that it's "by far the safer way for the environment."
But pipeline spills have also been an issue in Arkansas. In March 2013, Exxon Mobil's Pegasus line ruptured in Mayflower, spilling tens of thousands of gallons of oil in a neighborhood and into Lake Conway.
The 65-year-old pipeline stretches from Patoka, Ill., to Nederland, Texas. When the line was first built it carried oil north from the U.S. Gulf Coast to Midwest refineries. The flow of the pipeline was reversed several years ago, and it was carrying heavy Canadian crude when it ruptured.
State wildlife officials have said they are concerned about the Plains All American pipeline's proposed route through wildlife management areas.
The possibility of a leak is reduced with a new pipeline, Flynn said.
"I'd be more comfortable with a brand-new pipeline moving oil ... as opposed to using an old pipeline to move things along," he said.
Natural gasses
While drilling in the United States has shifted primarily to crude oil because of market prices, the country also is producing more natural gas liquids, such as butane and ethane.
Enterprise Products Partners stopped sending diesel and jet fuel to El Dorado, North Little Rock and Jonesboro on one of its pipelines last year so it could reverse the flow and move ethane, used to make plastics, from the Northeast to the Gulf Coast.
The 14-inch pipeline runs from Beaumont, Texas, to El Dorado, where the line grows to 16 inches and extends to Ohio.
Enterprise also has a parallel, 20-inch line that still ships diesel fuel to customers including Murphy USA.
"As a result of significant declines in demand for motor fuels in the Midwest, the Enterprise refined products system was being underutilized," said Enterprise spokesman Rick Rainey in an email. "Reversing one of the two pipelines allowed us to meet the strong demand from producers and shippers in the Marcellus/Utica shale basin for takeaway capacity to transport growing supplies of ethane to the Gulf Coast."
There is an economic incentive for Enterprise to reverse the pipeline to move ethane to the Gulf Coast, said Josh Henderson, vice president of fuels marketing at Murphy USA.
"These logistics companies are going to find ways to get the right products to the right markets, and then competition determines the best economic use of that infrastructure," he said.
New fuel services
The shale boom has also opened the state's petroleum market to new fuel sources, a move that could lead to lower retail prices, analysts and industry members say.
The production of domestic crude is beneficial because it "improves the refiners economics," said Andrew Clyde, president and chief executive officer for Murphy USA.
As domestic oil will make deliveries faster, cheaper and more reliable for refineries, it will in turn lead to lower prices for consumers, Valero's Bill Day said. Gasoline prices aren't as volatile as they used to be, he said. "It's because we're much, much less reliant on foreign crude that we use to be."
A report by the energy administration last week said record production of petroleum liquids in the United States has offset the rise in "unplanned global supply disruptions" in the past few years.
Arkansas also will get access to new fuel services when Magellan Midstream Partners' pipeline is operational in 2016, industry members said.
"What you're doing is you're now getting a bigger supply opportunity into the market," said Matt Schrimpf, president of HWRT Oil Company LLC.
Magellan is in the process of building a 12-inch pipeline that will connect the Little Rock market to its terminal in Fort Smith.
The company plans to spend about $150 million to build about 50 miles of new pipe and connect it to an existing 160-mile line it will lease for the project.
The pipeline will be capable of moving up to 75,000 barrels per day of refined product from connections to refineries in the Gulf Coast, Oklahoma and Kansas.
"Currently the Little Rock market does not have access to refineries in Oklahoma and Kansas via pipeline," Magellan spokesman Bruce Heinesaid in an email. "The Little Rock pipeline system will provide additional security for the supply of gasoline, diesel and jet fuel in the central region of the state."
Murphy USA's Henderson said new domestic fuel sources are good for consumers.
"It allows us to absorb some global shocks a little better than in the past," he said.
SundayMonday Business on 08/31/2014