With the fall harvest looming, pockets of the U.S. Midwest are bracing for a mad scramble for diesel fuel to power tractors and combines after the summer closure of a key pipeline that supplied buyers from Arkansas to Indiana.
After losing a months-long battle to prevent Enterprise Products Partners from shutting down its TE Products diesel and jet fuel line, which pumped its last barrel in July, local fuel distributors say they are seeing signs of the higher costs and longer drives they have feared were coming.
Aaron Littlefield, president of fuel supplier and transporter Littlefield Oil Co in Fort Smith, Arkansas, said that several of his drivers this month have been forced to make as many as three stops at diesel fuel terminals to fill up their tanks. Before, just a single trip to the Enterprise-supplied tank farm just north of the state capital of Little Rock had sufficed.
"It looks like the trouble is starting," he said.
Jet fuel providers have it even worse, he says. One was forced to travel as far as Tyler, Texas, 260 miles (418 km) southwest of Little Rock. Arkansas has only one small refinery in the far south, and it doesn't make jet fuel.
The shutdown illustrates how the nation's energy map is being redrawn amid the U.S. shale boom. Enterprise is repurposing its line to move cheap ethane from Pennsylvania's Marcellus gas fields to feed growing petrochemical plants in Texas. The company, which makes money based on the volumes it moves, saw more profits in that growing ethane market than in declining distillate volumes moving south to north.
The emerging shortages of distillate fuels in a landscape that is otherwise awash in energy has Midwest traders, suppliers and marketers racing to adapt.
Suppliers drive further to wait longer at fewer stocked terminals instead of relying on a pipeline that delivered fuel for years. Many anticipate pockets of higher prices at truck stops and gas stations in the region as higher freight costs to move fuel trickles down to the pump.
Moving fuel by truck can cost up to seven times more than moving it by pipeline, experts estimate.
Matt Schrimpf, president of Piasa Motor Fuels in Hartford, Illinois, his family's business of more than 80 years, said his staff has coached customers, encouraging them to plan ahead.
Many are farmers who may not understand that his trucks will have to drive twice as far to pick up another load.
"When these farm accounts call, they're used to saying 'Hey, I'm in the field, I forgot to call ahead and I need something now,'" he said. "Well, 'now' might be tomorrow."
Making matters even worse, the trains, barges and tanker trucks that will be needed to help carry fuel from other pipelines or faraway refiners are already running flat-out to help ferry crude oil around the country, another consequence of the proliferation of shale oil production.
Arkansas at Nexus
The shutdown affects parts of Louisiana, Missouri, Illinois and Indiana, but central Arkansas is the hardest hit, stuck between the major Gulf Coast and Rust Belt refining centers and poorly served by river or rail terminals.
Trucking, the most costly of all transport, is pretty much the only non-pipe option for supplying terminals, suppliers say. The cost quickly adds up: The Association of Oil Pipelines says trucking products for 300 miles could cost 20 to 30 cents a barrel compared with 4 cents for a barrel shipped on a pipeline.
Enterprise shut the 230,000 bpd distillates TEPPCO line after determining that there was insufficient demand to invest $50 million to upgrade a parallel gasoline and natural gas liquids line to move diesel and jet fuel as well.
Enterprise said it will upgrade the gasoline line to accommodate distillate shipments only within Arkansas - from the sole refinery in the state, Delek's 80,000 bpd plant in El Dorado, to the Little Rock area - but not from Texas.
And El Dorado doesn't make enough diesel to meet Little Rock's demand, according to Steve Mosby, a veteran trader who held a two-day tutorial on the changing trade flows at his Kansas City, Missouri, consultancy ADMO Energy LLC.
He said Little Rock needs about 49,000 bpd of diesel. Delek produced just 28,000 bpd in the second quarter, according to calculations based on a company presentation.
Refineries in neighboring Oklahoma and Kansas can't get supply to Little Rock via pipeline because none run far enough east to the center of the state, according to Mike Mears, chief executive of Magellan Midstream Partners LP, whose extensive Midwest refined products pipeline system has a segment that supplies its terminal in Fort Smith.
Instead, local fuel suppliers are forced to hit the highways to make up the deficit, picking up fuel 137 miles (220 km) east at Valero Energy Corp's 180,000 bpd refinery in Memphis, or 160 miles (257 km) west at the Fort Smith facility.
"Lines will get longer at Fort Smith," Mosby said.
The Delek refinery also doesn't make jet fuel, leaving suppliers for the Little Rock Air Force Base or the Bill and Hillary Clinton National Airport to tap other sources.
A New Reality
Delivery points outside of Arkansas, such as Cape Girardeau in southeast Missouri, Norris City in southern Illinois, or Seymour in south-central Indiana are fairly close to rivers and rail lines, giving suppliers those options.
But it's more expensive than before to book the railcars and barges due to the boom in inland crude oil production. Even if trains and barges are available, they may not have access to the right offloading infrastructure.
"There aren't many terminals that have the ability to unload diesel fuel via railcars or barge, particularly in the Little Rock market," said Chad Pistulka, manager of supply and logistics for agricultural fuel supplier CHS Inc.
Longer-term, there may be hope on the horizon.
A week ago, Magellan said it was seeking customer commitments to spend $250 million-$300 million to build a new 75,000 bpd refined products pipeline that would link its Fort Smith and Little Rock terminals.
After the shutdown caused a "significant diesel supply problem," the company is optimistic about the project, Mears said.
They will know soon: the deadline for binding commitments is Oct. 16. The bad news for Arkansas? It could take 18 months to build.