Please ensure Javascript is enabled for purposes of website accessibility

Oil Pipeline Companies are Cutting Fees to Entice Shippers

By Matthew DiLallo – Oct 6, 2020 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Several pipeline operators in Texas are offering discounts to bolster their volumes.

Turbulent conditions in the oil market are forcing pipeline companies to reduce their rates to incentivize shippers to use their systems, according to a Bloomberg report. Several are offering discounts or other incentive programs to existing customers to increase the volumes flowing through their Texas oil pipelines.

Kinder Morgan (KMI -1.75%) is reportedly offering discounts of up to 50% to some customers on its Eagle Ford Pipeline. Meanwhile, Magellan Midstream Partners (MMP -1.20%) is negotiating lower tariffs on its BridgeTex system for certain shippers. Energy Transfer (ET -2.53%) is also planning a volume incentive program to qualifying customers on its Permian Express 2 and 3 pipelines.

A natural gas pipeline at sunset.

Image source: Getty Images.

Driving these discounts is the significant decline in oil volumes this year as producers shut-in wells and halted their drilling program to combat the impact of COVID-19 on oil demand. That affected demand for pipeline capacity, which caused shipping rates to tumble. After starting the year above $3 a barrel, the cost to move oil from the Permian Basin to the Gulf Coast has recently plunged below $1 a barrel, which isn't enough to cover the transport costs.

The current market conditions are a significant reversal from two years ago when pipeline companies couldn't build new capacity fast enough to meet surging demand. Because of those conditions, companies like Magellan Midstream were cashing in on existing pipelines such as BridgeTex by selling uncontracted capacity on the spot market at a premium.

However, those volumes have dried up over the past year. Because of that, pipeline companies aren't finding takers for their available capacity, causing them to offer big discounts to keep existing ones filled. Meanwhile, the deteriorating conditions also led several pipeline operators to mothball proposed Permian oil pipeline projects over the past year.

 

Matthew DiLallo owns shares of Energy Transfer LP and 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Magellan Midstream Partners, L.P. Stock Quote
Magellan Midstream Partners, L.P.
MMP
$47.67 (-1.20%) $0.58
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
KMI
$17.39 (-1.75%) $0.31
Energy Transfer LP Stock Quote
Energy Transfer LP
ET
$11.55 (-2.53%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
338%
 
S&P 500 Returns
108%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.