HOUSTON (CN) — In a state antitrust complaint Tuesday, an energy company accused Magellan Pipeline of using its monopoly of oil distribution and storage on the Houston Gulf Coast to charge unfair and exorbitant fees.
Fairway Energy Partners sued Magellan Pipeline Company and two subsidiaries, claiming they’ve acquired a stranglehold on the Houston Gulf Coast market through acquisition from BP, Shell and Occidental Petroleum.
Fairway is completing a storage facility that will hold up to 7.5 million barrels of crude oil in salt caverns in Harris County, outside of Houston. Salt caverns can be formed by pumping out natural gas or water. Because salt is impervious to oil, it can be stored indefinitely underground, to be pumped out when needed or when market conditions are right.
Fairway claims that “Magellan’s manipulation of connectivity to enhance its own crude oil distribution and storage business lines — while barring competitors such as Fairway Energy from accessing its common carrier system — is a hallmark of a monopolistic and anticompetitive behavior that Texas law is intended to prevent.”
Magellan owns the Houston Crude Oil Distribution System, “one of the largest petroleum pipeline systems in the United States,” which includes more than 100 miles of pipeline, according to the complaint. The system provides transfer and storage for several sources, including the Permian Basin, the Eagle Ford Shale and the Cushing hub in Oklahoma.
Also, the Canada-based oil company TransCanada plans to use Magellan’s distribution system via the Keystone pipeline, the complaint states.
Fairway says Magellan “purports to be a common carrier,” which allows it to use eminent domain to buy private land for its pipelines in the public interest. Actually, Fairway says, Magellan “abused its dominant market position and acted in a concerted matter to keep out competitors,” including Fairway. It claims that “has refused to grant an interconnection without extorting Fairway Energy.”
Fairway says it agreed to pay the full overhead cost of integrating its pipelines and storage facilities when they are completed in April, but Magellan still refused. It claims Magellan also lied to customers on transfer and storage integration.
“Many third party market participants have expressed interest in using Fairway Energy’s Storage Facility,” to both Fairway and Magellan. But Magellan either “made misstatements of fact to the third parties or solicited those shippers to store their crude oil with Magellan instead of Fairway Energy,” according to the complaint.
Fairway claims other oil distributors have faced similar obstacles with Magellan, including Oiltanking in Texas City and Vopak Moda Houston.
Magellan rejected Fairway’s claims in an emailed statement Tuesday.
“We believe Fairway has misrepresented the law and the facts and their claims are without merit,” the company said. “Magellan conducts its business in compliance with all applicable laws and regulations.”
Fairway sued Magellan through the Texas Railroad Commission in March 2016. It accused Magellan of discrimination and of violating the Texas Natural Resources Code and the Common Carrier Act by refusing to allow Fairway to integrate its storage and pipeline facilities into Magellan’s pipeline system.
Magellan sought dismissal, which the Railroad Commission granted on the discrimination claims but denied on to the Common Carrier Act.
In response to the Railroad Commission ruling, Magellan called Fairway’s claims and suggested remedies “unprecedented and unreasonable” because it failed to cite a necessity for the integration to take place.
Fairway Energy seeks exemplary damages for tortious interference with prospective contracts and for violating the Texas Free Enterprise and Antitrust Act.
It is represented by Amy Baird with Jackson Walker LLP in Houston.