Magellan Midstream Partners (NYSE:MMP) operates a diverse set of assets that transports, stores, and distributes petroleum products. That said, the company makes most of its money moving and storing refined products like gasoline and diesel. In fact, the company controls the longest refined petroleum products pipeline system in the country, which currently connects to about half of the nation's refining capacity.

Here's a closer look at that massive system as well as what the future holds for it.

A pipeline linked to an industrial complex.

Image source: Getty Images.

Digging into Magellan's refined products pipeline system

Magellan Midstream Partners' refined products pipeline system currently stretches 9,700 miles. To put that into perspective, it's enough pipe that if laid end-to-end could go from New York to Los Angeles more than three times. That said, the company's system focuses on the country's central region traversing 15 states and going from northwestern Minnesota all the way down to Texas' Gulf Coast:

A map of Magellan Midstream Partners Refined Products Segment.

Image source: Magellan Midstream Partners.

Overall, Magellan Midstream Partners moves more than 1.2 million barrels of refined products per day through this network of pipelines. That's about 6% of the petroleum products consumed in the country on a daily basis. These pipes serve as a vital link between refineries and 53 connected terminals that support local market demand. Further, the company has the capacity to store up to 42 million barrels of products to ensure regional markets have adequate supplies. In exchange for supplying this vital link, Magellan earns a steady income stream by collecting fees for providing services like shipping barrels across its pipelines, storing them at its terminal sites, and providing other services like blending in ethanol or other fuel additives.

That said, while Magellan Midstream Partners owns the longest refined products pipeline system in the U.S. it isn't the largest independent transporter of petroleum products in North America. That distinction goes to Kinder Morgan (NYSE:KMI), which transports 2.1 million barrels per day. Kinder Morgan moves those volumes across about 9,000 miles of products pipelines, primarily in the West, Southeast, Midwest, and Canada.

Where does Magellan grow from here?

Since it already owns the longest pipeline system in the country and refining isn't a growth business in this country, there are fewer opportunities for Magellan to expand its existing pipeline system. That's why the bulk of the company's current slate of growth projects are in its crude oil and marine storage segments. For example, the company and several partners are expanding the Saddlehorn Pipeline, which is a 600-mile oil pipeline from the DJ Basin to the country's oil storage hub in Cushing, Oklahoma. Meanwhile, the company's largest project is building a new marine storage terminal in Pasadena, Texas. It's currently investing $335 million in the initial phase of the project and could potentially spend another $1 billion on future expansion opportunities at that location.

That said, while the company's current slate of projects focuses on growing the crude oil and marine storage segments, it's pursuing additional refined product growth opportunities. The company has more than $500 million of projects in development that are a mix of refined products and crude oil opportunities, including additional refined products pipelines. Meanwhile, another potential expansion opportunity is to make acquisitions that expand its pipeline network. Future deals could include buying refined products pipelines currently owned by refining companies or acquiring a third-party competitor. That said, at the moment the company's other two segments provide the most visibility for future growth.

A solid foundation for the distribution

Magellan's refined products segment is the company's profit center since it contributes about 60% of its gross operating margin each year by collecting steady fees, including from transporting volumes on the longest refined product system in the country. That provides the company with a solid foundation to support its generous 5.1% distribution. That said, while its massive network of refined products pipelines generates gobs of cash flow, it lacks readily visible expansion opportunities at the moment. Though, the company more than makes up for that with an extensive slate of projects in its other two segments, which should fuel 8% annual distribution growth through the end of next year.

Matt DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Magellan Midstream Partners. The Motley Fool has a disclosure policy.