US pipeline firms are sweetening terms amid the industry downturn in a bid to attract producers to keep using their lines. Weak demand during the coronavirus pandemic forces producers to cut their output which means less oil is being transported and a lot of pipes are underutilized. To sell these spaces, pipeline operators such as Magellan Midstream Partners, Enterprise Product Partners, and Energy Transfer offer more attractive terms under existing contracts and lower rates when those contracts are renegotiated.
Magellan offered customers the option to use its pipeline only during supportive market conditions. This term contrasts to the typical contracts whereby producers agree to ship a set volume at a fixed-rate regardless of market situations. This contract, called take-or-pay, protects pipeline companies’ revenue even if producers do not ship oil on their lines.
Analysts expect US pipeline companies to lose up to 50% revenues on some lines this year. Magellan, Enterprise, and Energy Transfer are expected to see their revenue drop 37% on average in the second quarter as producers ship smaller volumes of oil. Magellan reported a 16.5% decline in its revenues from terminal operations and crude transportation in the second quarter.
Meanwhile, Energy Transfer’s second-quarter revenues fell by almost 50% year-on-year to $7.34 billion from $13.88 billion during the same period. Enterprise scraps a project to build a 450,000-bpd Permian crude pipeline in Texas. The company also said it amended deals with shippers by extending the contract period while allowing them to ship less oil in the near-term.
