Fairway Energy, a Houston-based energy company, is going to court over access to Houston’s largest oil pipeline network.
On Tuesday Fairway sued Oklahoma-based Magellan Midstream Partners for damages due to Magellan’s refusal to connect Fairway’s new underground oil storage system to its existing and expanding Houston-area crude oil distribution system.
According to Fairway, Magellan is illegally trying to control the increasing flow of oil from West Texas and other areas into the Houston area which violates the Texas Free Enterprise and Antitrust Act.
“They’re purposely trying to stifle competition,” said Fairway Chief Commercial Officer Dana Grams. “Everyone complains that, in the Houston Ship Channel market, you get nickel and dimed on fees. Competition is one way to negate that.”
Bruce Heine, Magellan spokesman, said a ruling forcing Magellan to comply with Fairway’s wishes would represent “unprecedented action” that would “fundamentally change longstanding industry practices and the Texas pipeline regulatory environment.”
Magellan noted that Fairway’s connections to Enterprise Products Partner’s Houston pipeline network offers a backdoor into Magellan’s system, rendering Fairway’s demand unnecessary.
Currently the issue is pending before the Texas Railroad Commission, but Fairway opted to sue Tuesday in order to seek damages and the recouping of lost business opportunities.
On April 1st Fairway is scheduled to take its new oil storage system online in South Houston. The underground salt cavern storage system can hold 7.5 million barrels of crude, with plans to grow to 20 million barrels of storage.
At issue is the Magellan pipeline system’s status as a “common carrier” pipeline network. The designation gives Magellan the ability to use private land through eminent domain to serve what’s considered the greater public good of delivering oil and other products. The designation, however, requires pipelines to be available “for hire” by other companies. Fairway contends that status requires Magellan to give it access.
In 2011 a Texas Supreme Court ruling determined pipeline companies can utilize eminent domain by claiming to be a common carrier. This can be challenged in court.
Article written by HEI contributor Lydia Ezeakor.