Falling fuel shipments from Philadelphia to western Pennsylvania will put a 60-year-old pipeline into a "death spiral" without a partial reversal, operator Buckeye Partners has told Pennsylvania regulators.
But refiners and fuel distributors there counter that changing the 350-mile (563km) pipeline will close off in-state fuel supplies to chase higher tariffs from out-of-state producers.
Volumes across the current Laurel pipeline system connecting Philadelphia to Pittsburgh in will fall to zero by 2025, Buckeye's Laurel subsidiary said in filings seeking Pennsylvania Utility Commission approval to reverse a portion of the line between Altoona and Pittsburgh. Plunging throughputs increase the risk of stranding volumes in the pipeline and difficulty clearing fuel during summer and winter transition months, the company said.
"Laurel is repurposing a wasting asset to bring lower-cost petroleum products to Pittsburgh and central Pennsylvania," Buckeye subsidiary Laurel Pipeline Company said in its filing.
Sunoco and Marathon Petroleum pipelines connecting midcontinent refiners to Pittsburgh have helped to erode fuel deliveries from eastern Pennsylvania to western markets. Shipments across the Laurel system fell from 104,000 b/d in 2006 and 65,000 b/d in 2016 to 45,000 b/d in the 12 months ending September 2017, when the filing was made, Buckeye said.
The reversal would increase pipeline capacity available to midcontinent refiners running cheaper Bakken and Canadian heavy crude to supply the Pittsburgh and central Pennsylvania markets. It would also shift the products pipeline system to Federal Energy Regulatory Commission regulation as an interstate line. Buckeye has secured 10-year commitments from unidentified shippers supporting the reversal.
Philadelphia refiners and Pennsylvania fuel distributors argued the reversal eliminates Pittsburgh's flexible supply. Midcontinent refiners can already reach the market, when wanted, through the competing lines. But Laurel offers the only path into the region for Philadelphia refiners who say they beat midcontinent prices three quarters of the year.
"There is full access from both directions today," fuel distributor Sheetz vice-president Mike Lorentz told state senators this week. "If the Midwest is awash in product, where is it? We will buy it."
The reversal would instead pressure Philadelphia refiners into competition with European gasoline imports and less attractive markets. A joint filing by refiner Philadelphia Energy Solutions, Delta Air Lines refining subsidiary Monroe Energy and fuel distributors Gulf Oil and Sheetz warned a reversal could cut refining rates by 132,000 b/d.
Philadelphia refiners have also cited federal fuel blending mandates called the Renewable Fuel Standard as a potential threat to their businesses and Pennsylvania jobs. Buckeye representatives dismissed the risk in comments to state senators this week.
"The proposed reversal is not in the top 10 reasons for their financial distress," said Dave McGregor, the company's lead counsel before the state utility process. "This is a smokescreen to distract attention from whatever the causes of financial distress are."
An administrative law judge must now decide whether a major shift in US Atlantic coast fuel supply will benefit the public — and whether she has the jurisdiction to govern it. Buckeye has argued the pipeline should be treated as a common carrier facing competition, while opponents have leaned on the state commission's more traditional role regulating monopolistic natural gas and water utilities.
Buckeye this fall said it expected a decision in the second quarter. Milestones associated with the reversal detailed in the application, if approved, describe "pre-reversal" markers into August, and "post-reversal" actions beginning in September.
