Magellan Midstream Partners (NYSE:MMP) is thinking about expanding its newly reversed Longhorn pipeline, as demand for pipeline shipments from Texas' Permian Basin continues to grow.
According to CEO Mike Mears, shipper commitments were much greater than the pipeline's current capacity of 225,000 barrels per day. To satisfy the strong demand, Magellan may increase that capacity by 50,000 barrels per day.
If Magellan decides in favor of expanding Longhorn's capacity, the expansion project would take between a year and 18 months to complete and would cost an estimated $80 million, according to Mears.
Permian crude oil output stays strong
Strong interest from shippers underscores the staggering growth in the region's crude oil production and the resultant surge in demand for infrastructure. Much of the growth comes from the Permian Basin, an expansive play spanning western Texas and eastern New Mexico, where new drilling techniques and enhanced oil recovery methods have led to a phenomenal surge in oil output.
The play, which has been producing oil for nearly a century, has seen crude oil production surge by roughly 50% from its 2007 low to more than 1.3 million barrels a day currently – about twice as much as the Bakken's daily production. In fact, thanks to the Permian Basin and the Eagle Ford play – another oil and gas hotspot – Texas crude oil production last year rose to its highest level since 1992.
Other companies expanding Permian infrastructure
Several other companies are also eager to capitalize on surging Permian Basin production by building or expanding pipelines that directly connect Permian production to Houston-area refineries. In the first quarter, Sunoco Logistics Partners, now part of Energy Transfer Partners (NYSE:ETP), started shipping oil from the Permian Basin to Houston-area refineries after reversing its Permian Express pipeline's flow.
And most recently, Plains All American (NYSE:PAA) announced that it is building a new pipeline – the Cactus pipeline – to bring Permian Basin oil to refining markets in Corpus Christi and Houston. The line is expected to start shipping as much as 200,000 barrels of oil per day in the first quarter of 2015.
Even as these and other pipeline projects come on line, expectations about Permian oil output growth suggest that infrastructure will continue to lag production, providing midstream companies ample opportunities to benefit.
Motley Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Magellan Midstream Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.