In Dallas, Texas, three of the country's major terminal and pipeline operators told attendees at the RBC Capital Markets MLP conference on Nov. 19 that the recession-triggered destruction in consumption for oil products has bottomed, while demand for logistical infrastructure is strong.

"I think the bottom has been reached," said Deborah Fretz, president and CEO of Sunoco Logistics Partners L.P. "Hard to see that it would get much worse."

She said gasoline demand has been ticking higher, although the consumption rate for middle distillates has lagged. Presenters Danny Oliver, NuStar Energy L.P. vice president of Marketing and Business Development, and Mike Mears, Chief Operating Officer with Magellan Midstream Partners, L.P., concurred, although none of the executives are anticipating a robust recovery in fuel demand.

Oliver said the move to fuel efficient products in the United States will limit demand growth for the country longer term. He also said that growth in the consumption of finished products in the U.S. would be less than in Asia, the Middle East and parts of Latin America.

"Still expect modest improvement in refined fuels going forward," he said.

Mears said marginal growth improvements are expected for gasoline over the next few years, although an outlook for diesel fuel was more difficult to project because of its close relationship with the economy. He said diesel demand would recover with the economy.

"The recovery might be slow, but it will be there," said Fretz.

According to preliminary data from the Energy Information Administration, implied gasoline demand year-to-date is up 0.3 percent against the same time period in 2008. Demand for distillate fuels is 9.4 percent lower for the same period while jet fuel consumption is lagging the prior year by 9.6 percent.

The three executives have an excellent vantage point from which to observe the flow of products from refineries to end users, collectively controlling more than 15,000 miles of pipeline, nearly 150 terminals and 75 million bbl of storage capacity for oil products. Their assets stretch across a large swath of the country, with Sunoco Logistics housing product terminals in 10 states, NuStar terminals in six states and Magellan in 21 states. Magellan's 9,500-mile products pipeline is connected to every refinery in the Midwest and 40 percent of total U.S. refining capacity.

Where strong growth is anticipated is in new storage capacity, with the executives all highlighting organic growth strategies in expanding their businesses moving forward.

There's a "very strong market for new storage," said Mears.

He said Magellan is currently constructing 4.0 million bbl of new storage while simultaneously considering new projects that would add tank capacity. Magellan is also adding storage capacity for ethanol at 11 terminals now, mostly in the Southeast, while considering other terminals where it might add storage holding for ethanol. Currently, Magellan has 59 terminals with ethanol storage capacity. The partnership has earmarked $500 million in capital expenditures for the upcoming year.

Oliver said of the $300 million NuStar plans on spending on internal growth projects in 2010 roughly $220 million is expected to be in storage.

Sunoco Logistics, which has a large interest in moving crude oil as well as refined products, sees growth in all its businesses "with particular emphasis on the refined products system."

Fretz said the partnership is less dependent on moving volume for Sunoco, Inc., the independent refiner Sunoco Logistics was once part of, with growth for its business being driven by third parties on its western system. She added that acquisition opportunities will continue to be a major feature of the partnership's growth plans, expecting a number of the oil majors to divest logistical assets in 2010. Fretz said a host of potential asset sales were pulled from the auction block when values slumped during the recession, expecting the "for sale" sign to reappear next year.

Sunoco Logistics, which set aside $175 to $200 million in revenue for 2009 for capital investment expansions, has invested heavily through acquisitions. Since its initial public offering in 2002 through this year, Sunoco Logistics has invested $644 million in acquisitions and $511 million in organic growth expansions.

Another compelling feature of these operators is their fee-based earnings structure, and the offsetting risk features regarding volume movement and storage.

Pipelines, which are federally regulated when crossing state lines, earn revenue primarily based on the volume of product moving through the pipeline. Storage operators earn revenue when their tanks are filled with product. There are other factors of course, and terminal operators also collect revenue for blending biofuels for example. However, this business structure augers well in both well supplied markets as well as in markets with strong demand.

Oliver suggested it was recession proof, noting when demand slides reducing refiner output and product movement on pipelines, storage dynamics improve, creating a carry forward or contango market.

"While shut-in refinery capacity or lower refinery runs result in lower pipeline volumes, the weakness in refined product margins contribute to a contango market structure," Oliver offered.

A contango market is one in which near-term supply is discounted against deferred delivery because there's ample supply to meet existing demand. The opposite is backwardation in which near-term product holds a premium to deferred delivery because demand is outstripping available supply. The market flipped from backwardation to contango after oil prices set all-time record highs in July 2008 before collapsing to multi-year lows by late 2008, early 2009.

In comparison to earlier in the year, "We have seen a flatter contango structure," said Oliver, "but still contributing to storage demand."

He added that commodity prices will continue to be volatile with large swings expected, which supports storage via arbitrage opportunities.