Marathon Pipe Line LLC Building a New Cornerstone in the Pipeline Industry

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Pipelines are nothing new to Marathon Petroleum Corp. But in the last five years, pipelines have become a major focus for the Findlay, Ohio-based company.

Marathon Petroleum Corp.’s (MPC) predecessor, the Ohio Oil Co., founded in 1887, built its first pipeline in 1906, a 191-mile, 8-in. line from Martinsville, Indiana, to Preble, Indiana, to move 34,000 barrels per day (bpd) of crude.

Despite a century-long history of operating pipelines, MPC took a bold leap into the pipeline industry with the formation of MPLX LP in 2012. The new company was formed as a master limited partnership to own, operate, develop and acquire midstream energy infrastructure assets. Marathon Pipe Line LLC (MPL), originally established in 1960, was reorganized under MPLX to own and operate pipelines and related facilities.

The company’s history has many twists. Founded in 1887, Ohio Oil was purchased by John D. Rockefeller’s Standard Oil in 1889. However, it became independent again in 1911 after Standard Oil was broken up when the U.S. Supreme Court ruled it was an illegal monopoly.

The Marathon retail brand was first established in 1930 after Ohio Oil bought the Transcontinental Oil Co. Three decades later, Ohio Oil created the Marathon Pipe Line Co., which at the time controlled the 14th largest pipeline network in the United States. Two years later, Ohio Oil changed its name to Marathon Oil Co.

Marathon Oil moved its headquarters to Houston, Texas, in 1990, but the company’s refining division remained headquartered in Findlay. In 2011, MPC split from Marathon Oil, with MPL as its subsidiary.
With the creation of MPLX, pipelines have become a new cornerstone of MPC’s overall business.

MPLX owns assets to facilitate the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids (NGLs); and the transportation, storage and distribution of crude oil and refined petroleum products, through a network of pipeline assets in the Midwest and Gulf Coast regions, terminals, storage facilities, inland marine business, a barge dock facility and other gathering and processing assets.

Marathon Pipe Line operates approximately 6,000 miles of pipeline in 14 states, with diameters ranging from 4 to 40 in. Through those assets, MPL transports crude oil, refined petroleum products and refinery feedstocks to and from terminals, refineries and other pipelines, controlling the movement and delivery of an average of 130 million gallons of crude oil and petroleum products daily through its pipelines.
In December 2015, MPLX acquired MarkWest Energy Partners, adding natural gas processing to the company’s business.

Over the last five years, MPL has added more than 1,500 miles of pipeline to its system through new build, acquisition or reactivation. The company has taken a three-step approach to developing pipelines — first locally, then regionally and then connecting to other pipeline systems nationally and internationally — with the primary focus on connecting Ohio’s Utica shale play to the North American market.

RELATED: MPLX Utica Build-Out Projects Begin Operations

MPLX and MPL lean on two primary principles when developing and operating its pipelines, according to Tim Aydt, president of MPL. The first is safety, and the second is maintaining good relationships.
“We believe in safety as our No. 1 priority,” Aydt says. “I’m sure you hear that from everybody, but we believe if we get safety right, the rest will follow.”

He adds, “A company can’t have bad operations and good safety.” Those principles are too closely linked.
While MPL takes seriously its duty of being “guardians of public safety,” Aydt says the company’s “true distinction” is understanding the importance of the relationship it has with “the 21,000 landowners that we consider to be business partners.”

“They’re the ones who are on their property daily,” he says. “We value the relationships we have with our landowners. We try to be good partners. We try to communicate often, to the point where we err on over-communication. When we undertake a project like we just did for the Harpster-to-Lima Pipeline, we engaged landowners early and often. We held focus groups to learn how we can improve. We want them to give us a scorecard, and we take that process seriously. If there are items that we need to take and adjust, we take that as a great learning moment.”

Aydt says this focus on strong relationships with landowners helps the company avoid the “quagmire of bad press” and foster a positive image of MPLX and MPL, as well as MPC as a whole.

“Pipelines are in the news a lot, and a lot of times they’re in the news for negative reasons,” he adds. “I think we can all do a better job to make sure the relationships we have with landowners are valued and improved.”

Landowners play a vital role in pipeline development, according to Jason Stechschulte, commercial development manager for MPL. The company has added 108 miles of new pipelines in the last 12 months, and it worked with the landowners to ensure that none of the land was acquired through eminent domain.

“Other companies don’t treat landowners the same way,” he says.

Landowners also play a vital role after the pipe is in the ground.

“We operate thousands of miles of pipeline,” Stechschulte says. “We operate our system from Findlay, and we have qualified people in the field, but the landowners are really our eyes and ears out there. The better educated we can make the landowners, the better MPC is able to operate as a company.”

Strong relationships are also crucial with another important group — the regulators.

“Beyond our relationships with the landowners, we value relationships we have with the regulatory community as well,” Aydt says. “Whether it’s PHMSA, the Army Corps of Engineers or another agency, they all have a role in the government to serve the public. They have responsibilities to assure companies like MPC and our competitors do everything by the book, for the best interest of all.”

Compliance with local, state and federal regulations, he adds, is one thing that a pipeline operator can never compromise.

“Some companies suffer from adversarial relationships with the regulators,” Aydt says. “We try to maintain positive relationships so that we can be among the best-in-class operators. We’re not perfect, but it’s our goal to be.”

Building Out the Utica

The central piece of MPC’s pipeline expansion over the past five years has been the Utica strategy projects in

welders on Harpster-Lima pipeline

Welders join sections of pipe on the recently completed Harpster-to-Lima Pipeline, which completed Marathon Pipe Line’s Utica Build-Out strategy.

Ohio, consisting of three new pipelines, the 50-mile Cornerstone Pipeline, the 49-mile Harpster-to-Lima Pipeline and the 8-mile Hopedale Connection Pipeline.

Also as part of the Utica strategy scope, MPLX has expanded capacity of two product pipelines, including the East Sparta-to-Heath and Heath-to-Harpster pipelines to connect with the new pipeline at Harpster, Ohio. In December 2016, the company reversed the 250-mile, 8-in. RIO Pipeline to provide further distribution to the Midwest from Lima, Ohio.

MPLX is currently constructing additional connectivity and expanding pipelines to provide diluent service to western Canada, which is expected to be complete later this year.

“We have approached pipeline expansion in three phases,” Stechschulte says. “First, we worked to connect to the local markets, with the Canton refinery and the Cornerstone Pipeline. Second was developing regional connectivity to the Midwest, which was done through projects like the Utica Build-Out, getting the RIO Pipeline reversed and connecting 10 refineries in Midwest. And third, we are providing connectivity to the diluent market through the Cochin Pipeline with Kinder Morgan and the Southern Lights Pipeline with Enbridge, to provide a full pipeline solution from those origin points in the Utica to serve western Canada. Those will come online in second half of 2017.”

Cornerstone began full operations last October. The two-section pipeline is a batched system that serves as the backbone for the Utica Build-Out. A 16-in. diameter portion stretches for 42 miles from the MarkWest condensate stabilization facility near Cadiz, Ohio, also connecting the Utica East Ohio fractionation facility and condensate stabilization facility near Scio, Ohio, to MPC’s tank farm in East Sparta, Ohio. From there, an 8-in. diameter section runs for 8 miles to MPC’s refinery in Canton, Ohio.

The 16-in. section is capable of transporting 180,000 bpd and the shorter stretch from East Sparta to Canton is capable of 45,000 bpd. A 105,000-barrel tank was added at East Sparta for storage of the natural gasoline and an existing 79,000-barrel tank was converted for condensate service.

The company estimates that Cornerstone coming online replaced up to 130 tanker truck runs between Cadiz and Canton, with the trucks instead focusing on shorter local runs between Utica facilities.
The Canton refinery produces approximately 50,000 bpd of gasoline and about 30,000 bpd of diesel for the Midwest market. MPC upgraded the facility in 2014, building a state-of-the-art operations center and expanding capacity with a 25,000 bpd tower for processing Utica condensate. The addition brought the plant’s total capacity up to 93,000 bpd.

The Hopedale Connection was also completed last year and commissioned in December. The short pipeline connects MarkWest’s Hopedale fractionation facility to the Cadiz facility for connectivity to Cornerstone.

MPLX most recently announced that the final piece of the Utica Build-Out was complete, with the Harpster-to-Lima Pipeline becoming fully operational on July 1. The 49-mile, 12-in. pipeline is designed to transport condensate and natural gasoline in a batched system from Harpster to a tank farm in Lima, where it can then continue on to refineries in Ohio, Michigan, Indiana and Illinois.

The East Sparta-to-Heath Pipeline is an 81-mile, 8-in. pipeline. The Heath-to-Harpster Pipeline is a 67-mile, 10-in. pipeline. Along with the Harpster-to-Lima Pipeline, all three assets now have a capacity of 50,000 bpd.

With the Utica Build-Out projects complete, MPL’s operations have succeeded in connecting shale production areas in Ohio, Pennsylvania and West Virginia to the local and regional markets. Now the company is focusing on connecting those facilities further westward and into Canadian markets.

Earlier this year, MPLX made two major investments to expand its crude oil pipeline capacity, through the acquisition of the Ozark Pipeline and through a joint venture with Enbridge Energy Partners.

Announced Feb. 13, a subsidiary of MPLX agreed to purchase the Ozark Pipeline from Enbridge Pipelines LLC for approximately $220 million. The pipeline is a 433-mile, 22-in. crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois, capable of transporting approximately 230,000 bpd. The company plans to expand the pipeline’s capacity to approximately 345,000 bpd by the second quarter of 2018.

MPLX announced Feb. 15 that it acquired a partial interest in the Bakken Pipeline system, including the Dakota Access Pipeline (DAPL), through a joint venture with Enbridge, called MarEn Bakken Co. LLC. MPLX paid $500 million of the $2 billion purchase price for the joint venture to acquire a 36.75 percent interest in the pipeline system from Energy Transfer Partners and Sunoco Logistics Partners. Through a subsidiary, MPLX owns a 25 percent interest in the joint venture, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system.

RELATED: Enbridge, Marathon to Pay $2B for Stake in Bakken Pipeline System

Further expanding its reach into Midwest, MPLX announced Aug. 1 that MPL launched a binding open season for the Wood River-to-Patoka Pipeline, which is fed by the Ozark Pipeline. The existing pipeline provides transportation from Wood River to Patoka, Illinois. The project will expand the current capacity of 215,000 bpd to 345,000 bpd by increasing horsepower and adding drag-reducing agent. The expansion is expected to begin service in the second quarter of 2018.

Accelerating in a Downturn

MPLX and MPL have ramped up its expansion strategy despite low commodity prices and an overall slowdown in the pipeline industry. While producers were cutting back and some pipeline projects were delayed or canceled altogether, the company saw an opportunity to accelerate growth.

“Specific to the Utica, when you looked across the play, there were no liquids pipelines,” Stechschulte explains. “There were some planned, but that’s it. As MPC continued down that path with Cornerstone and the Utica Build-Out, we took this accelerated strategy to the corporate leadership and said, look, it’s not a great time in market, there’s slowdown for producers, so a smaller pipeline will be sufficient, but it may be undersized if the market comes back.”

MPC made the decision to build larger pipelines in anticipation of a rebound.

“We also focused on strategic upgrades of existing lines and facilities,” Stechschulte adds. “One thing that was pushed down the path of acceleration was the acquisition of MarkWest. They work with the producers every day to get product into their facilities. With that acquisition, we felt more confident in what the producers would do.”

By providing better access to markets for the Utica shale producers, MPC believed the projects prove worthy of the investment.

tanks

Marathon Petroleum and its subsidiaries are active in the 811 damage prevention community, as shown here on one if its storage tanks near its headquarters in Findlay, Ohio.

Education and Outreach

Aydt and Stechschulte believe that building strong relationships through community outreach and public education are crucial aspects of developing oil and gas pipelines. By engaging landowners early on in the development process, getting feedback and generally being respectful, MPL is able to meet its own needs as a business.

“One leads to the other,” Aydt says about the relationship. “We go into every pipeline opportunity with a long-term mindset. Our employees, corporate culture and community service are all part of that.”

Cornerstone is good example, Stechschulte says. In East Sparta, Ohio, MPL was looking to expand its operations, adding tanks, pumps and other equipment. While meeting with the town council and mayor of the village, they came to an agreement for assistance for various things like road repairs, safety items and addressing concerns of lighting and sound on the site. The company has also organized various fundraising efforts in the community and provided meals.

“When we reach out to a community, they don’t just want to hear that we’re going to build a pipeline and get out and make our money,” Stechschulte adds. “They want to know that we’re invested in them, that we’re members of those communities and we’re going to lift them up as well.”

Aydt adds, “We all want to have good relationships in our personal lives and our corporate lives, and I don’t paint a distinction there.”

Aside from community outreach, MPL also gets involved with educating the industry. Through industry trade associations like the American Petroleum Institute (API) and Association of Oil Pipe Lines (AOPL), the company is active in presenting at different conferences and events throughout the year. The company is especially active in the 811 Call Before You Dig damage prevention community.

MPL has been particularly active in sharing lessons learned with other pipeline industry stakeholders, through API’s Pipeline Information eXchange (PIX) and one-on-one with different companies.

“One thing where we’ve really been a leader in is, eight to 10 years ago, we started an information share program to share best practices and information regarding incidents on our pipelines,” Stechschulte says. “We get together with other companies and let them know what happened, why it happened and what we did in response. It’s not just for us to learn from, but for them as well.”

A Good Time to Develop Pipelines

The pipeline industry has been slow to recover from its most recent downturn, but Aydt and Stechschulte remain confident in the long-term prospects of the market.

“If you look at what’s going on with the rapid growth of the shale plays across the country, it’s a great time to be in this business,” Stechschulte says. “We try to offer the industry solutions. It’s important to note that oil and gas pipelines help the average citizen. By making it cheaper to move materials from Point A to Point B, where the product gets turned into gas for our cars, jet fuel or any of the other common products,
it’s good for our energy security and provides a more
consistent market.”

Pipelines also serve a vital role in the economy, Aydt says. With hydrocarbons playing a role in every aspect of our lives, pipelines keep commerce flowing.

“We understand our role in the pipeline industry,” he says. “We’re there to serve a larger purpose, to develop the totality of the oil and gas industry. We’re an important piece in solving the nation’s energy problems. We understand the world doesn’t begin and end with pipelines, but they’re an integral part of developing the nation’s energy infrastructure. The whole economy in the United States and worldwide revolves around low cost, available fuels. Ninety-five percent of everything we use is derived in some fashion from hydrocarbons, from the cell phone in our pockets to the fibers in our clothes. It’s even in our medicines. In order for our economy to keep growing and remain robust, people need to understand that we depend on a thriving infrastructure, and pipelines are a key piece of that.”

Pipelines are the safest, most efficient way to ship oil and gas, says Stechschulte, adding that large volume pipelines make the most sense.

“If we use the Harpster-to-Lima pipeline as an example, only some refineries take Utica condensate,” he explains. “It takes a truck three to four hours to drive from the Utica shale production area to refineries in western Ohio, whereas we can move 190 barrels in five minutes through our pipeline.”

While trends in the oil and gas pipeline industry can be difficult to predict, Aydt sees long-term growth ahead for the world’s use of energy.

“I’m a firm believer that hydrocarbons will be a key piece of the energy portfolio long after we’re gone,” he says. “In the United States, we’re seeing growth in fields like the Permian and Bakken. The timing for developing these resources is directly tied to the price of crude oil. Prices need to be in a range that can support investment. It seems like we had a lot of activity when it was in the $50 per barrel range, but a lot less when it was in the upper $40 and $30 range. The whole development of shale with advances in directional drilling has led to drastic changes.

The upstream component in the shale plays is much more efficient, which will lead to more opportunity to lay pipeline and develop infrastructure.”

Bradley Kramer is managing editor of North American Oil & Gas Pipelines. Contact him at bkramer@benjaminmedia.com.

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