Houston-based Fairway Energy is taking the fight over access to Houston’s largest oil pipeline network to court.
Fairway on Tuesday sued Oklahoma-based Magellan Midstream Partners for damages over Magellan’s refusal to connect Fairway’s new underground oil storage system to its existing and expanding Houston-area crude oil distribution system.
Fairway claims Magellan is illegally trying to control the increasing flow of oil from West Texas and other areas into the Houston area and is violating 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.”
Magellan spokesman Bruce Heine said a ruling forcing Magellan to comply with Fairway’s wishes would represent an “unprecedented action” that would “fundamentally change longstanding industry practices and the Texas pipeline regulatory environment.”
Magellan also noted that Fairway’s connections to Enterprise Products Partners’ Houston pipeline network offers a roundabout backdoor into Magellan’s system and, thus, renders Fairway’s demand unnecessary.
The issue is already pending before the Texas Railroad Commission, but Fairway opted to sue Tuesday to seek damages and the recouping of lost business opportunities.
Fairway on April 1 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 expand 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.
A 2011 Texas Supreme Court ruling previously determined pipeline companies can utilize eminent domain by claiming to be a common carrier. Such designations can be challenged in court.