New tanks, Pipes Keep Airline Tanks Full

Some U.S. airlines are stepping up investments in fuel storage and pipelines.

And starting next month, a consortium of airlines operating out of San Francisco's airport will lease 230,000 barrels of nearby storage from Shell Oil Co. at a cost of $4 million a year, effectively doubling the airport's fuel-storage capacity to cover 10 days worth of demand.

Other airports that have increased or are planning to increase their overall jet-fuel storage capacity include: Albuquerque, Milwaukee, Sacramento, San Diego and San Jose, industry officials said.

Rob Murbin, a vice president of fuel management at Southwest, said his airline and a few others are taking matters into their own hands because 'it has just been hard to get oil companies interested in investing in infrastructure.'

Indeed, major oil companies have directed the bulk of their resources to exploration and drilling programs because it is the most lucrative end of the business at a time of $75-a-barrel oil. Similarly, oil pipeline operators have been cautious about flooding the market with distribution capacity because they are able to charge more when congestion on their lines is high.

But the distribution of all types of fuel has become so congested in certain markets that companies must weigh the potential for higher profits against the increased risk of unreliable service.

Colonial Pipeline is proposing to build a $1 billion 800,000-barrel-a-day pipeline between Baton Rouge and Atlanta that could significantly improve the fuel-supply situation at Atlanta's Hartsfield airport -- one of the nation's busiest -- and throughout the region.

Kinder Morgan Energy Partners LP is spending $25 million to boost the capacity of a 550-mile pipeline between Los Angeles and Las Vegas by 16,000 barrels a day by the end of next year. And the company recently completed a $210 million expansion of a pipeline that carries fuel from El Paso, Texas to Tuscon, Ariz., and Phoenix. By replacing 8-inch pipes with 12- and 16-inch pipes, the capacity of the pipeline was increased by 50 percent to almost 150,000 barrels a day, spokesman Larry Pierce said.

Kinder Morgan 'has not had a single call this summer from any airline regarding supply issues,' Pierce said. 'That's obviously good news from compared to how it was last summer.'

While adding storage is easier to do in the short term, Jet Fuel Report publisher John Armbrust believes the pipeline projects could ultimately be more significant.

'It matters how quickly you can fill up that storage in the event of an emergency,' he said.

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