US oil pipeline operators are offering lower fees to retain existing customers amid weak demand caused by the coronavirus pandemic. Some existing shippers are offered discounts of about 50% to keep using Kinder Morgan’s Eagle Ford pipeline. Magellan Midstream Partners reportedly offers lower tariffs in renegotiating certain contracts on its BridgeTex system that will expire before the end-year. Qualified customers can enjoy a volume incentive program at two Permian pipelines operated by Energy Transfer.
The sweeter terms reflect the operators’ efforts to combat sluggish oil demand and drilling in premier oil-producing regions such as the Permian Basin. The shale revolution has supported the expansion in US midstream industry and capacity in recent years. However, the health crisis halts the expansion as producers cut output, leaving these pipelines with significant underutilized capacity. In September, Enterprise Products Partners shelved plans to expand capacity by 450,000 bpd.
Oil market watchers said the industry also carried out a similar strategy during the previous oil downturn in 2014-2015. Permian producers were struggling to cover transport costs amid low oil prices.
