New Pipeline Fuels Memphis' Planes and Pockets

Author: 
Nicole Nelson
Published in: 
January-February
2012

The recent expansion of FedEx Corp.'s hydrant system to the former Air National Guard ramp at Memphis International Airport (MEM) is the latest in a series of fuel farm expansions and has been a boon to both the carrier and its headquarters airport.

As a direct benefit, MEM receives lease revenue from both the land and rights of way the pipeline required. In addition, the Port of Memphis earns a three-cent flowage fee for every barrel of oil that flows through the system and the city earns a percentage of revenues in a standalone agreement for access rights on its roadways. Combined, the three entities currently collect an estimated $2 million per year from fees related to the system.  




factsfigures

Project:

WesPac Memphis Fuel Farm System

Airport: Memphis (TN) Int'l Airport

Stakeholders: Airport, Port of Memphis,
City of Memphis, FedEx

Developer: WesPac Energy

Partnership: WesPac Pipelines-Memphis LLC

Est. Cost: Over $100 million (in 2011 dollars)

Assets:
- 18 miles of 12" pipe to the Teppco pipeline
system in West Memphis
- 1 mile spur interconnection to the Valero
Memphis refinery
- 3 integrated hydrant-pumping systems
with a total pumping capacity of 24,000 gpm
- 5 separate 24" hydrant delivery pipelines on the aircraft operations area along active taxiways and runways
- 3MW diesel generators (backup power supply
for entire fuel facility)

FedEx, in turn, receives "substantial tax incentives" and gained additional fuel system capacity that allows it to serve up to 15 more large-body aircraft. The recent addition of five new hydrant delivery pipelines, complete with new pumping and filtration systems, is an expansion of the company's original 18-mile pipeline that runs from airport property in Memphis, TN, across the Mississippi River to the Teppco pipeline system in West Memphis, AR. The new 24-inch pipe, completed in October, provides considerable flowage enhancements to the existing smaller piping.

Background

The events of 9/11 provided the impetus for MEM and FedEx to jointly review fueling infrastructure at the airport. Before the recent improvements, the system was both outdated and outgrown by the airport's primary carrier, explains Randy Richardson, executive director for the Port of Memphis.

"FedEx was looking for redundant pipeline systems because at the time, there was only one line going over there," recalls Richardson, referring to the existing system operated by pipeline giant Williams Co.

The delivery express giant also needed additional capacity, he adds. During peak periods, FedEx required more than 50 truck deliveries per day to supplement the volume its at-capacity pipeline could provide.

A study commissioned to identify potential alternatives outlined a number of options, including a new small tank farm without much connectivity. None of the ideas, however, were embraced due to their high capital costs. Still needing improvements, FedEx initiated a general request for proposal within the industry to seek other possible solutions. WesPac Energy, a general energy infrastructure developer with extensive experience developing pipeline and terminal projects in North America, ultimately won the bid. As a result, it provided the turnkey design, permitting and construction of the new system at the airport. It also owns and operates the system, under a public-private partnership scenario. The large tank farm provides a substantial amount of connectivity to the airport, with unprecedented connection to a large common-carrier pipeline that ties the airport system to 11 Gulf Coast refineries in the greater Houston area.

Breaking Ground

WesPac approached the Port of Memphis, because it has management, control and jurisdiction over the city- and county-owed land WesPac needed for its trunkline, explains Richardson. 

"FedEx had to come through our property at some point to get the fuel to the hub economically," Richardson summarizes.

Exploring how to do that ultimately lead to a creative public-private partnership. WesPac structured the financing and essentially deeded the project to the Port Commission, explains WesPac president David Smith. The Port Commission, on behalf of the city and county, became owners of the pipeline, and created a 30-year capital lease back to WesPac. 

Public domain ownership, explains Richardson, saved "substantial" tax dollars and made it economically viable for WesPac to bring the project to fruition. Because the assets belong to the municipality, the fuel farm is exempt from taxes as a utility in the state of Tennessee.
When the agreement was reached, officials estimated the tax incentives at $750,000 to $1 million per year, recalls Richardson. Much of the project was completed in 2007, he notes, but a few major additions followed as FedEx continues to require more capacity. The recently completed hydrant delivery pipeline is the latest expansion. 

In exchange for the tax break, the Port Authority collects a three-cent fee for every barrel of oil that flows through the system, and the city earns a percentage of revenues for access rights to its roadways. The Airport Authority receives lease payments for assets on its land and access to necessary rights of way. The new facilities currently generate a combined $2 million per year, estimates Smith.

From a big-picture perspective, the project provided "essentially twice as much infrastructure for less cost than the original proposal in the airport study," Smith notes, contrasting the preliminary option for small tank farm without much connectivity to WesPac's larger-capacity facility with extensive connectivity to the airport and further connection to the Teppco pipeline system.

Groundbreaking

WesPac's strategy required a 5,400-foot directional bore underneath the Mississippi River to the west side of the river and about 18 miles of pipeline, Smith chronicles. "That was a big deal, because what that did was allow the airport to be connected to the whole U.S. Gulf Coast refining complex when they were solely connected to one refinery in Memphis," he explains.

"All of that was a plus to what the airport study proposed, and it was all done as a privately financed deal where they are receiving revenues. And eventually, the facilities will revert to them."

Richardson considers the WesPac solution a win-win situation: "The municipalities still get paid for access to their property, but the developer has the ability to save tax dollars and actually build the plant to increase fuel requirements." 

Subcategory: 
Fuel Operations

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