Philadelphia News & Search
A gasoline war is developing in Pennsylvania, though it’s being waged not at the pump but over an underground pipeline, out of view of most consumers.
Laurel Pipe Line Co., which operates a 350-mile cross-state pipeline used by Philadelphia refineries for six decades to transport motor fuel and heating oil across Pennsylvania, has proposed to partly reconfigure the direction the pipeline flows. The move would expand the market for Midwestern refiners at the expense of refiners along the Delaware River.
Laurel wants to reverse the pipeline’s flow between Pittsburgh and Altoona, so the westward-flowing pipeline would terminate in Central Pennsylvania, 100 miles short of Pittsburgh. For refiners like Philadelphia Energy Solutions, which says it ships 20 percent of the gasoline, diesel and heating oil it produces on Laurel’s pipe, the change would effectively shut it out of the Pittsburgh market.
PES “has a substantial, immediate, direct and material interest in any cessation of service enabling the flow of petroleum products from Southeastern Pennsylvania to delivery points near Pittsburgh,” the refiner said in a recent filing with the Pennsylvania Public Utility Commission.
Laurel’s proposal has attracted an outpouring of legal filings from businesses with vested interests in the outcome, including Midwestern refiners such as Marathon Petroleum Co. that would benefit by extending their reach into Pennsylvania. Some large gasoline retailers in the western part of the state, including the Sheetz convenience-store chain and Giant Eagle grocery, have filed protests, fearing the reduction of fuel supply from Philadelphia would result in higher wholesale prices.
Republican and Democratic legislators in Harrisburg appear to have finally found an issue upon which they agree, from the looks of the identical protest letters they have filed with the PUC expressing concern about the impact of the pipeline change.
“From increases in fuel prices in western Pennsylvania to damage to the refineries in Southeast Pennsylvania, this proposal to reverse flow may appear to have minimal impact but is clearly of great consequence,” said one such letter, signed by 16 members of Philadelphia’s House delegation.
Administrative Law Judge Eranda Vero has scheduled for May 16 in Harrisburg two public hearings on the issue, the PUC announced Wednesday.
“It looks like it is developing into the ultimate Wrestlemania,” said Tom Kloza, global head of energy analysis for the Oil Price Information Service, who monitors retail fuel markets.
While refiners such as Philadelphia Energy Solutions and Delta Air Line’s Monroe Energy in Trainer have strongly protested the proposal, their local customers would be pleased if more fuel supplies were retained in Southeastern Pennnsylvania markets.
The pipeline reversal “would help to ensure a more reliable supply of petroleum products to our members’ customers while also helping our members to offer competitive prices to these customers,” wrote Douglas Woosnam, executive vice president of the Delaware Valley Fuel Dealers’ Association.
Laurel Pipe Line, which is owned by Buckeye Partners LP of Houston, says its proposal to reverse the pipeline flow to its Eldorado terminal near Altoona reflects long-term changes in fuel markets and would benefit consumers.
“The partial reversal of the Laurel pipeline is entirely in response to market forces,” Bill Hollis, senior vice president of Buckeye, said in a statement Wednesday. The pipeline transported about 84 million barrels of fuel in 2016, the company told the PUC.
“Domestic refiners in Illinois, Indiana, Kentucky, Ohio, and Michigan, which refine primarily North American-sourced crude oil and have expanded to meet shifting domestic energy needs, can adjust output to meet market demands across Western and Central Pennsylvania,” Hollis said. “This is a win for consumers, as wholesale Midwest gasoline prices are historically lower than the East Coast.”
Midwest refiners, which have invested heavily into their operations to take advantage of low-priced heavy crude from Canadian oil sands, are producing more fuel at lower cost than many big East Coast refiners that rely upon light crudes imported from Africa or the North Sea, said Kloza, the oil analyst.
“Pennsylvania has become the battleground for Midwestern refiners trying to take more market share,” he said.
“Obviously there’s some screaming and wailing and gnashing of teeth, which I understand from the perspective of the Philadelphia refineries, but [from] the standpoint of pure economics, the upper Midwest refineries are very advantaged,” Kloza said.
Laurel says that the volumes of fuel moving on its pipeline from Philadelphia to Pittsburgh have been decreasing in recent years, reflecting the market’s preference for cheaper fuels from Midwest refiners.
“The portion of the Laurel pipeline that we’re seeking to reverse is increasingly underutilized, which reflects the evolving market dynamics driving this proposal,” Hollis said. He said the change would bring an additional 1.7 million gallons, or 40,000 barrels, of fuel into the Pittsburgh, Altoona, and State College areas.
Laurel says Philadelphia producers will have other options to deliver fuel into Pittsburgh, but analysts believe it will force the Delaware River refiners to sell more fuels into East Coast markets, where they compete with imported gasoline and diesel. PES said that without the pipeline there are “no realistic and economically viable” alternatives for it to reach Pittsburgh markets.
The pipeline company argues that its 1957 certificate of public convenience from the PUC does not stipulate which direction fuels should flow, and has asked the commission to approve this change and to confirm its flexibility to alter pipeline flows at its choosing in the future.
The Philadelphia refiners dispute Laurel’s argument, saying the pipeline was clearly intended to transport fuel from Philadelphia to western points. The pipeline, which has a 24-inch diameter in the Philadelphia, gradually is reduced in size to 18 inches in diameter as it reaches various 14 fuel terminals and tank farms along its route, from which trucks distribute the fuel to retail outlets.
Some fuel-industry insiders say the PUC’s decision is critical because it could set the stage for a future move by Laurel to reverse flow entirely from west to east, giving Midwestern refiners access to the Philadelphia market, as well as Delaware River export terminals.
Philadelphia News & Search