Magellan Midstream Partners LP, which specializes in petroleum storage and transportation, said demand for its services swelled in the fourth quarter and is expected to grow further this year as consumption of travel fuels mounts.

U.S. crude inventories

Tulsa-based Magellan said Wednesday in its fourth quarter earnings release that the refined products business, which comprises about 70% of operating margin, benefited “from significantly improved transportation volumes” compared with late 2020 levels “due to the recovery in travel, economic and drilling” activity.

“We assume that refined products pipeline shipments continue to increase during 2022,” with fuel demand and economic momentum expected to trend favorably through the year, CEO Michael Mears said during an earnings call with analysts. He said 2022 shipments were projected to increase about 4% from 2021 levels, driven by a 4% increase in demand for gasoline, a 2% bump in distillate fuels, and a 15% jump in aviation fuel consumption.

The company also expects to increase its fees on refined product deliveries by 6% beginning in July – when agreements reset – due to both demand and inflation.

Rising Demand As Activity Grows

Magellan’s outlook reflects broader consumption trends as both the U.S. and global economies continue to grow and travel activity rebounds amid widespread coronavirus vaccination campaigns. While the pandemic persists, the governments of most major countries have resisted substantial business and travel restrictions, relying instead on vaccines to enable the strong economic recoveries of 2021 to extend into the current year.

The U.S. Energy Information Administration (EIA) said domestic petroleum product demand averaged 21.6 million b/d over the four-week period ended Jan. 28, up 12% from the same period a year earlier. Over that span, motor gasoline demand averaged 8.2 million b/d, up 5%, while distillate fuel consumption averaged 4.4 million b/d, up by 11%, and jet fuel product supplied averaged nearly 1.5 million b/d, up 29%.

Globally, the Saudi Arabia-led Organization of the Petroleum Exporting Countries said in its January global outlook that total demand would rise by 4.15 million b/d this year. It estimated that consumption would exceed 100 million b/d in the third quarter, returning demand to pre-pandemic levels

Magellan said that as demand came back in 2021, it invested in expanding infrastructure. The company spent $73 million on expansion projects and said it currently plans to spend $50 million in 2022 to complete projects already committed. This work includes an expansion of its refined products pipeline system from Kansas to Colorado by late 2022. It also includes an expansion of the company’s New Mexico refined products pipeline, expected to be operational in April.

“We expect to add more growth projects throughout the year, although most likely smaller scale like these recent pipeline expansions,” Mears said.

Management said it continues to assess additional capital investments and expects expansion capital spending to total nearly $100 million for 2022. 

“Bottom line is, we remain patient and committed to our disciplined investment approach” but “continue to look for opportunities to invest in attractive low-risk projects,” Mears added on the call. Mears, who announced in January his intention to retire in April, also noted on the call that his successor will be current COO Aaron Milford.

Magellan reported fourth quarter net income of $244 million ($1.14/share), up from $184 million (82 cents) a year earlier. For the year, the company reported profit of $982 million ($4.47), up from $817 million($3.62) in 4Q2021.

For the first quarter of 2022, Magellan projected per-share earnings of $1.02. It estimated full-year 2022 earnings of $4.20/share.