Scrambling for diesel as Midwest pipeline shuts before harvest
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.
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