A bruising two-year battle between Philadelphia and Midwestern refiners over access to Pennsylvania's only cross-state gasoline pipeline is about to shift into a higher gear.
Buckeye Pipeline LP is pushing ahead to convert its Laurel pipeline, which now flows from Delaware River refineries to serve the Pittsburgh market, into bidirectional service between Pittsburgh and Altoona. The move is designed to expand access of ascendant Midwestern refiners into Western Pennsylvania markets previously served primarily from Philadelphia.
Buckeye announced its intention in April, but is ratcheting up efforts after state regulators on July 12 rejected its previous proposal to abandon east-to-west service at Altoona, which would effectively create a dead-end for Philadelphia refiners, 90 miles short of Pittsburgh.
By going bidirectional, Buckeye says the pipeline's flow can be switched periodically depending upon market conditions, providing customers in Altoona and Pittsburgh markets with access to suppliers from the East Coast or the Midwest.
In practical terms, the decision likely would achieve what Buckeye set out to do two years ago when it announced plans to cut off westward service at Altoona — hand over Western Pennsylvania markets to expanding Midwestern refiners that are flush with low-cost supplies of crude oil from domestic and Canadian oil fields.
"We still believe that's what will happen," said David W. Arnold, Buckeye's vice president of domestic pipelines.
Philadelphia refiners and some of their large Western Pennsylvania customers, including retailers Sheetz and Giant Eagle, objected to Buckeye's proposal to abandon east-to-west service between Altoona and Pittsburgh, saying it was bad for refinery workers, consumers, and Pennsylvania.
The Philadelphia refiners formed a coalition called DenyBuckeye.com to fight the proposal before the Pennsylvania Public Utility Commission. The PUC on July 12 rejected Buckeye's plan to abandon service.
Buckeye in April applied to the Federal Energy Regulatory Commission to create a formal tariff to carry fuels like gasoline, diesel, and heating oil from refineries in Ohio and Illinois to Altoona. It says the proposal complies with the PUC ruling, since the Laurel pipeline will still be available to deliver fuel from Philadelphia to Pittsburgh, and competition will be preserved.
The refiners, Philadelphia Energy Solutions LP and Monroe Energy LP, along with several Western Pennsylvania retailers, have objected to Buckeye's proposal before the federal commission, calling it a "partial abandonment" of intrastate service that would harm their interests.
"Laurel has never provided firm assurances that current service will not be diminished," the refiners said, saying the bidirectional proposal "would violate its statutory obligation" as a Pennsylvania shipper to provide "reasonably continuous and uninterrupted" service within the state.
Underlying the Philadelphia refiners' concern is that the move into Altoona is only the first advance for low-cost Midwestern refiners to move all the way across Pennsylvania, and to eventually use the pipeline to access maritime shipping outlets on the Delaware River.
Buckeye says the Laurel pipeline is currently underused by Philadelphia refiners, which have been steadily losing market share to Midwestern refiners in Pittsburgh. It says the 18-inch diameter pipeline has plenty of spare capacity: It can carry 180,000 barrels per day, but has averaged about 51,500 barrels per day in the last 12 months. The highest volume in the last two years was 105,000 barrels per day.
Buckeye says it wants to transport up to 40,000 barrels of fuel from the Midwest to Altoona.
Buckeye now provides bidirectional service on 10 other pipelines, and says the process is not novel. Customers request service in advance, and the pipeline schedules the direction of the flow to match market demand.
Buckeye's Malecky says the market trends are inescapable.