Magellan Midstream takes legal action against Trafigura

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By Liz Hampton | HOUSTON

HOUSTON Pipeline and terminal operator Magellan
Midstream Partners LP said on Thursday it had started
legal action against Trafigura after the commodity
trader said it would terminate a contract to use Magellan’s
condensate splitter in Corpus Christi, Texas.

Trafigura is the only customer that uses the condensate
splitter, under a contract it signed in 2014. Magellan said it
is negotiating with Trafigura, but is also talking with other
potential customers for use of the splitter.

Magellan said Trafigura notified it of plans to terminate
the contract last week. Trafigura declined to comment.

“Magellan believes this notice is in breach of the agreement
and has initiated legal action,” the midstream operator said in
its fourth-quarter earnings release. It did not disclose details
on the legal move.

Midstream companies rushed to build condensate splitters,
which break light oil into products such as naphtha and
unfinished distillates, during the shale boom. Those products
could be exported or sold domestically.

The United States began allowing exports of light condensate
in 2014, making the splitters less necessary. A year later, the
country lifted a decades-long ban on exporting crude oil.

Trafigura in 2014 signed a fee-based, take-or-pay agreement
for Magellan’s 50,000 barrel-per-day splitter project, which
cost around $300 million.

“The worst-case scenario would be we don’t run it. I think
the probability of that is extremely low,” Magellan Chief
Executive Officer Michael Mears told analysts on a conference
call to discuss quarterly earnings on Thursday. “If there is
value there, we will find a way to extract it. And there is
value there,.

Magellan could run the splitter for its own account by
purchasing feedstock and selling resulting products, Mears said,
noting that is the least-preferred option.

Mears declined to go into specific details of the lawsuit on
the call.



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