--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2001

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to


                        Commission File Number 001-10311

                         KANEB PIPE LINE PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              75-2287571
(State or other jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                          2435 North Central Expressway
                             Richardson, Texas 75080
          (Address of principal executive offices, including zip code)

                                 (972) 699-4000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

         Yes    X                                             No

Number of Units of the Registrant outstanding at July 31, 2001:  20,285,090

--------------------------------------------------------------------------------

<PAGE>
KANEB PIPE LINE PARTNERS, L.P.  AND SUBSIDIARIES


FORM 10-Q
QUARTER ENDED JUNE 30, 2001
--------------------------------------------------------------------------------
                                                                        Page No.
                           Part I. Financial Information

Item 1.  Financial Statements (Unaudited)

         Consolidated Statements of Income - Three and Six Months Ended
           June 30, 2001 and 2000                                            1

         Condensed Consolidated Balance Sheets - June 30, 2001
           and December 31, 2000                                             2

         Condensed Consolidated Statements of Cash Flows - Six
           Months Ended June 30, 2001 and 2000                               3

         Notes to Consolidated Financial Statements                          4

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                    11

Item 3.  Quantitative and Qualitative Disclosure About Market Risk          16

                           Part II.  Other Information

Item 6.  Exhibits and Reports on Form 8-K                                   16



<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except Per Unit Amounts)
(Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             Three Months Ended             Six Months Ended
                                                                  June 30,                      June 30,
                                                       -----------------------------  -----------------------------
                                                            2001           2000            2001           2000
                                                       --------------  -------------  -------------  --------------

<S>                                                    <C>             <C>            <C>            <C>
Revenues                                               $       52,952  $      38,438  $     101,021  $       75,118
                                                       --------------  -------------  -------------  --------------
Costs and expenses:
     Operating costs                                           22,282         17,004         43,937          34,284
     Depreciation and amortization                              5,951          3,961         11,702           7,936
     General and administrative                                 2,848          2,514          5,176           5,017
                                                       --------------  -------------  -------------  --------------
       Total costs and expenses                                31,081         23,479         60,815          47,237
                                                       --------------  -------------  -------------  --------------
                  Operating income                             21,871         14,959         40,206          27,881

Interest and other income, net                                  3,388             82          4,096             141
Interest expense                                               (4,043)        (2,961)        (8,764)         (5,980)
                                                       --------------  -------------  ------------- ---------------
Income before minority interest,
    income taxes and extraordinary item                        21,216         12,080         35,538          22,042
Minority interest in net income                                  (211)          (120)          (352)           (217)
Income tax provision                                              (72)           (78)          (307)           (376)
                                                       --------------  -------------  -------------  --------------
Income before extraordinary item                               20,933         11,882         34,879          21,449
Extraordinary item - loss on debt
    extinguishment, net of minority interest
    and income taxes                                            -               -            (5,757)          -
                                                       --------------  -------------  -------------  --------------
       Net income                                              20,933         11,882         29,122          21,449

General partner's interest in net income                         (536)          (413)          (944)           (803)
                                                       --------------  -------------  -------------  --------------

Limited partners' interest in net income               $       20,397  $      11,469  $      28,178  $       20,646
                                                       ==============  =============  =============  ==============

Allocation of net income per unit:
    Before extraordinary item                          $         1.01  $         .63  $        1.68  $         1.13
    Extraordinary item                                           -              -              (.29)           -
                                                       --------------  -------------  -------------  --------------
                                                       $         1.01  $         .63  $        1.39  $         1.13
                                                       ==============  =============  =============  ==============
Weighted average number of limited
   partnership units outstanding                               20,285         18,310         20,285          18,310
                                                       ==============  =============  =============  ==============

</TABLE>

                 See notes to consolidated financial statements.
                                        1


<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                              June 30,                December 31,
                                                                                2001                     2000
                                                                           -------------            --------------
                                                                             (Unaudited)
<S>                                                                        <C>                       <C>
         ASSETS
Current assets:
     Cash and cash equivalents                                             $      21,308             $        4,758
     Accounts receivable                                                          24,350                     21,091
     Prepaid expenses and other                                                    4,759                      5,291
                                                                           -------------             --------------
         Total current assets                                                     50,417                     31,140
                                                                           -------------             --------------

Property and equipment                                                           633,300                    458,926
Less accumulated depreciation                                                    154,654                    137,571
                                                                           -------------             --------------
     Net property and equipment                                                  478,646                    321,355
                                                                           -------------             --------------
Investment in affiliates                                                          20,769                     22,568
                                                                           -------------             --------------
                                                                           $     549,832             $      375,063
                                                                           =============             ==============

     LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
     Current portion of long-term debt                                     $      22,926             $        -
     Accounts payable and accrued expenses                                        23,720                     17,491
     Accrued distributions payable                                                14,814                     13,372
     Payable to general partner                                                    1,989                      1,889
                                                                           -------------             --------------
         Total current liabilities                                                63,449                     32,752
                                                                           -------------             --------------
Long-term debt, less current portion                                             253,700                    166,900

Other liabilities and deferred taxes                                              15,541                     13,676

Minority interest                                                                    963                        968

Commitments and contingencies

Partners' capital                                                                216,179                    160,767
                                                                           -------------             --------------
                                                                           $     549,832             $      375,063
                                                                           =============             ==============

</TABLE>

                 See notes to consolidated financial statements.
                                        2

<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                                           June 30,
                                                                           ----------------------------------------
                                                                                2001                      2000
                                                                           -------------             --------------
<S>                                                                        <C>                       <C>
Operating activities:
   Net income                                                              $      29,122             $       21,449
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation and amortization                                              11,702                      7,936
       Minority interest                                                             352                        217
       Equity in earnings of affiliates, net of distributions                      1,639                        662
       Deferred income taxes                                                         307                        376
       Extraordinary item                                                          5,757                      -
       Changes in other liabilities                                               (1,114)                     -
       Changes in working capital components                                       5,499                      1,973
                                                                           -------------             --------------
         Net cash provided by operating activities                                53,264                     32,613
                                                                           -------------             --------------
Investing activities:
   Capital expenditures                                                           (6,196)                    (2,883)
   Acquisition of terminals, net of cash acquired                               (106,810)                     -
   Proceeds from sale of assets                                                    2,807                      -
   Other, net                                                                        (71)                    (2,152)
                                                                           -------------             --------------
         Net cash used in investing activities                                  (110,270)                    (5,035)
                                                                           -------------             --------------

Financing activities:
   Issuance of debt                                                              257,500                      4,500
   Payments of debt                                                             (154,314)                    (3,309)
   Distributions, including minority interest                                    (29,630)                   (26,744)
                                                                           -------------             --------------
         Net cash provided by (used in)
               financing activities                                               73,556                    (25,553)
                                                                           -------------             --------------
Increase in cash and cash equivalents                                             16,550                      2,025
Cash and cash equivalents at beginning of period                                   4,758                      5,127
                                                                           -------------             --------------
Cash and cash equivalents at end of period                                 $      21,308             $        7,152
                                                                           =============             ==============
Supplemental cash flow information:
   Cash paid for interest                                                  $       7,781             $        6,279
                                                                           =============             ==============
   Non-cash investing and financing activities -
     Issuance of units for acquisition of terminals                        $      56,488             $        -
                                                                           =============             ==============

</TABLE>


                 See notes to consolidated financial statements.
                                        3



<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


Notes to Consolidated Financial Statements
(Unaudited)
--------------------------------------------------------------------------------

1.   SIGNIFICANT ACCOUNTING POLICIES

     The unaudited  condensed  consolidated  financial  statements of Kaneb Pipe
     Line Partners,  L.P. and its subsidiaries (the "Partnership") for the three
     and six month periods  ended June 30, 2001 and 2000,  have been prepared in
     accordance  with  generally  accepted  accounting  principles  applied on a
     consistent  basis.   Significant   accounting   policies  followed  by  the
     Partnership  are  disclosed  in the  notes  to the  consolidated  financial
     statements included in the Partnership's Annual Report on Form 10-K for the
     year  ended  December  31,  2000.  In  the  opinion  of  the  Partnership's
     management,  the accompanying  condensed  consolidated financial statements
     contain the adjustments, consisting of normal recurring accruals, necessary
     to present fairly the  consolidated  financial  position of the Partnership
     and its  consolidated  subsidiaries  at June 30, 2001 and the  consolidated
     results of their  operations  and cash flows for the periods ended June 30,
     2001 and 2000.  Operating  results for the three and six months  ended June
     30, 2001 are not necessarily indicative of the results that may be expected
     for the year ending December 31, 2001.


2.   ACQUISITION AND FINANCING

     On January 3, 2001, the  Partnership,  through a  wholly-owned  subsidiary,
     acquired  Shore  Terminals  LLC  ("Shore")  for  $107  million  in cash and
     1,975,090  Partnership  units  (valued  at  $56.5  million  on the  date of
     agreement  and its  announcement).  Financing  for the cash  portion of the
     purchase  price was supplied under a new $275 million  unsecured  revolving
     credit  agreement with a group of banks. The acquisition has been accounted
     for using the  purchase  method of  accounting.  Assuming  the  acquisition
     occurred on January 1, 2000,  unaudited pro forma revenues,  net income and
     net  income  per unit  would be $46.6  million,  $13.2  million  and $0.63,
     respectively,  for the three months ended June 30, 2000, and $90.9 million,
     $24.0  million and $1.14,  respectively,  for the six months ended June 30,
     2000.

     The $128 million of first mortgage  notes  outstanding at December 31, 2000
     which were due in varying amounts from 2001 to 2016, were repaid in full in
     January of 2001 with the proceeds  from the $275 million  revolving  credit
     facility.  Under the  provisions  of the mortgage  notes,  the  Partnership
     incurred a $6.5 million  prepayment  penalty,  before minority interest and
     income taxes, which has been recognized as an extraordinary  expense in the
     first quarter of 2001.


3.   COMPREHENSIVE INCOME

     Comprehensive  income for the three and six months  ended June 30, 2001 and
     2000 is as follows:
<TABLE>
<CAPTION>

                                                        Three Months  Ended                 Six Months Ended
                                                             June 30,                           June 30,
                                                    ---------------------------        ---------------------------
                                                        2001           2000                2001           2000
                                                    -----------     -----------        -----------     -----------
                                                                            (in thousands)

<S>                                                 <C>             <C>                <C>             <C>
     Net income                                     $    20,933     $    11,882        $    29,122     $    21,449
     Other comprehensive income (loss)
        - foreign currency translation
        adjustment                                        (163)         (1,080)              (858)            (925)
                                                    -----------     -----------        -----------     -----------
     Comprehensive income                           $    20,770     $    10,802        $    28,264     $    20,524
                                                    ===========     ===========        ===========     ===========
</TABLE>


4.   CASH DISTRIBUTIONS

     The  Partnership  makes  quarterly  distributions  of 100% of its Available
     Cash,  as  defined  in the  Partnership  Agreement,  to  holders of limited
     partnership units  ("Unitholders") and the general partner.  Available Cash
     consists  generally of all the cash receipts of the  Partnership,  plus the
     beginning cash balance less all of its cash disbursements and reserves. The
     Partnership  expects to make  distributions of all Available Cash within 45
     days  after  the  end of each  quarter  to  Unitholders  of  record  on the
     applicable record date. A cash distribution of $0.70 per unit for the first
     quarter of 2001 was paid on May 15, 2001. A cash  distribution of $0.70 per
     unit for the second  quarter of 2001 was  declared  to holders of record on
     July 31, 2001 and was paid on August 14, 2001.


5.   CONTINGENCIES

     The operations of the Partnership  are subject to Federal,  state and local
     laws and  regulations in the United States and the United Kingdom  relating
     to protection of the  environment.  Although the  Partnership  believes its
     operations  are  in  general   compliance  with  applicable   environmental
     regulations,  risks of  additional  costs and  liabilities  are inherent in
     pipeline  and  terminal  operations,  and  there can be no  assurance  that
     significant  costs and liabilities will not be incurred by the Partnership.
     Moreover,  it is possible  that other  developments,  such as  increasingly
     stringent   environmental  laws,   regulations  and  enforcement   policies
     thereunder,  and claims for damages to property or persons  resulting  from
     the operations of the  Partnership,  could result in substantial  costs and
     liabilities to the Partnership.

     On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac Electric
     Power  Company  ("PEPCO")   ruptured.   The  pipeline  was  operated  by  a
     partnership  of  which  ST  Services,  a  wholly-owned  subsidiary  of  the
     Partnership,  is general partner. PEPCO has reported that, through December
     2000, it incurred  approximately  $66 million in clean-up costs and expects
     to incur total cleanup costs of $70 million to $75 million. Since May 2000,
     ST  Services  has  participated  provisionally  in a minority  share of the
     cleanup expense,  which has been funded by ST Services' insurance carriers.
     The Partnership  cannot predict the amount,  if any, that ultimately may be
     determined  to be ST Services'  share of the  remediation  expense,  but it
     believes  that  such  amount  will be  covered  by  insurance  and will not
     materially affect the Partnership's financial condition.

     As a result of the  rupture,  purported  class  actions  have been filed in
     federal and state court in Maryland  by  property  and/or  business  owners
     alleging damages in unspecified amounts against PEPCO and ST Services under
     various  theories,  including the federal Oil Pollution  Act. The court has
     ordered a consolidated  complaint to be filed in this action.  ST Services'
     insurance  carriers  have assumed the defense of these  actions.  While the
     Partnership cannot predict the amount, if any, of any liability it may have
     in these suits,  it believes that such amounts will be covered by insurance
     and that  these  actions  will not have a  material  adverse  effect on its
     financial condition.

     PEPCO and ST  Services  have agreed with the State of Maryland to pay costs
     of assessing  natural resource damages under the federal Oil Pollution Act,
     but they cannot  predict at this time the amount of any damages that may be
     claimed by Maryland.  The  Partnership  believes  that both the  assessment
     costs and such  damages are covered by  insurance  and will not  materially
     affect the Partnership's financial condition.

     The U.S.  Department  of  Transportation  has  issued a Notice of  Proposed
     Violation to PEPCO and ST Services  alleging  violations over several years
     of pipeline  safety  regulations and proposing a civil penalty of $674,000.
     ST Services and PEPCO have contested the  allegations of violations and the
     proposed  penalty.  The ultimate  amount of any penalty  attributable to ST
     Services  cannot be determined at this time, but the  Partnership  believes
     that this  matter  will not have a  material  effect  on the  Partnership's
     financial condition.

     Certain subsidiaries of the Partnership were sued in a Texas state court in
     1997 by Grace  Energy  Corporation  ("Grace"),  the  entity  from which the
     Partnership   acquired   ST  Services   in  1993.   The  lawsuit   involves
     environmental  response and remediation  allegedly  resulting from jet fuel
     leaks in the early 1970's from a pipeline. The pipeline,  which connected a
     former  Grace  terminal  with Otis Air  Force  Base in  Massachusetts,  was
     abandoned in 1976,  when the  connecting  terminal was sold to an unrelated
     entity.

     Grace alleged that  subsidiaries of the Partnership  acquired the abandoned
     pipeline,  as part of the  acquisition  of ST Services in 1993, and assumed
     responsibility  for environmental  damages allegedly caused by the jet fuel
     leaks.  Grace sought a ruling that these  subsidiaries  are responsible for
     all present and future  remediation  and  expenses for these leaks and that
     Grace has no obligation to indemnify these subsidiaries for these expenses.

     In the lawsuit,  Grace also sought indemnification for expenses that it has
     incurred  since  1996  of  approximately  $3.5  million  for  response  and
     remediation  required  by the  State of  Massachusetts  and for  additional
     expenses that it expects to incur in the future. The consistent position of
     the  Partnership's  subsidiaries is that they did not acquire the abandoned
     pipeline as part of the 1993 ST Services transaction, and therefore did not
     assume any responsibility for the environmental damage nor any liability to
     Grace for the pipeline.

     At the end of the trial,  the jury  returned a verdict  including  findings
     that Grace had breached a provision of the 1993  acquisition  agreement and
     that the pipeline was abandoned  before 1978. On August 30, 2000, the Judge
     entered  final  judgment in the case,  which is now on appeal to the Dallas
     Court of Appeals,  that Grace take  nothing  from the  subsidiaries  on its
     claims,  including claims for future expenses.  Although the  Partnership's
     subsidiaries  have  not  incurred  any  expenses  in  connection  with  the
     remediation,  the court also ruled, in effect,  that the subsidiaries would
     not be entitled to an indemnification  from Grace if any such expenses were
     incurred  in the  future.  However,  the Judge  let  stand a prior  summary
     judgment  ruling that the pipeline was an asset of the company  acquired as
     part of the 1993 ST Services  transaction.  The Judge also awarded attorney
     fees to Grace.

     While the  judgment  means  that the  subsidiaries  have no  obligation  to
     reimburse  Grace for the  approximately  $3.5 million it has  incurred,  as
     required by the State of Massachusetts, the Partnership's subsidiaries have
     filed  an  appeal  of the  judgment  finding  that the  Otis  Pipeline  was
     transferred to them and the award of attorney fees.

     On April 2, 2001,  Grace filed a petition in  bankruptcy,  which created an
     automatic  stay against  actions  against  Grace.  This automatic stay will
     affect the appeal of this matter.  The Texas court of appeals has issued an
     order staying all proceedings of the appeal because of the bankruptcy. Once
     that stay is lifted,  the Partnership's  subsidiaries that are party to the
     lawsuit intend to resume vigorous prosecution of the appeal.

     The Otis Air Force Base is a part of the Massachusetts Military Reservation
     ("MMR"),  which  has  been  declared  a  Superfund  Site  pursuant  to  the
     Comprehensive  Environmental Response,  Compensation and Liability Act. The
     MMR Site contains nine groundwater  contamination  plumes, two of which are
     allegedly associated with the pipeline,  and various other waste management
     areas of  concern,  such as  landfills.  The United  States  Department  of
     Defense and the United States Coast Guard, pursuant to a Federal Facilities
     Agreement,  have been responding to the Government  remediation  demand for
     most of the  contamination  problems at the MMR Site. Grace and others have
     also  received and  responded to formal  inquiries  from the United  States
     Government in connection with the environmental damages allegedly resulting
     from  the  jet  fuel  leaks.  The  Partnership's  subsidiaries  voluntarily
     responded  to an  invitation  from the  Government  to provide  information
     indicating  that  they  do not  own  the  pipeline.  In  connection  with a
     court-ordered mediation between Grace and the subsidiaries,  the Government
     advised  the  parties  in April 1999 that it has  identified  the two spill
     areas that it believes to be related to the pipeline that is the subject of
     the Grace suit.  The  Government  at that time  advised the parties that it
     believed it had incurred costs of approximately  $34 million,  and expected
     in the future to incur costs of approximately $55 million,  for remediation
     of one of the spill  areas.  This  amount  was not  intended  to be a final
     accounting of costs or to include all  categories of costs.  The Government
     also advised the parties that it could not at that time  allocate its costs
     attributable to the second spill area.

     By letter  dated July 26, 2001,  the United  States  Department  of Justice
     advised ST Services that the Government  intends to seek reimbursement from
     it under the  Massachusetts Oil and Hazardous  Material Release  Prevention
     and Response  Act and the  Declaratory  Judgment  Act for the  Government's
     response costs at the two spill areas.  The Government  advised ST Services
     that it believes it has incurred costs exceeding $40 million and expects in
     the  future  to incur  costs  exceeding  an  additional  $22  million,  for
     remediation  of the two spill  areas.  The  Partnership  believes  that its
     subsidiaries  have  substantial  defenses  to the  Government's  claims and
     intends to assert such defenses in a responsive letter to the Department of
     Justice.  The response letter is due on or before September 10, 2001.

     The  Partnership  does not believe that either the Grace  litigation or the
     claims made by the  Government  will  adversely  affect its ability to make
     cash  distributions to its  unitholders,  but there can be no assurances in
     that regard.

     The Partnership has other contingent liabilities resulting from litigation,
     claims  and  commitments  incident  to the  ordinary  course  of  business.
     Management believes that the ultimate resolution of such contingencies will
     not have a materially  adverse effect on the financial  position or results
     of operations of the Partnership.


6.   BUSINESS SEGMENT DATA

     The Partnership  conducts  business through two principal  operations;  the
     "Pipeline  Operations,"  which consists  primarily of the transportation of
     refined  petroleum  products in the Midwestern  states as a common carrier,
     and the  "Terminaling  Operations,"  which  provide  storage for  petroleum
     products, specialty chemicals and other liquids.

     The Partnership  measures segment profit as operating income.  Total assets
     are those controlled by each reportable  segment.  Business segment data is
     as follows:

<TABLE>
<CAPTION>
                                                        Three Months  Ended                 Six Months Ended
                                                             June 30,                           June 30,
                                                    ---------------------------        ---------------------------
                                                        2001           2000                2001           2000
                                                    -----------     -----------        -----------     -----------
                                                                            (in thousands)

<S>                                                 <C>             <C>                <C>             <C>
     Business segment revenues:
       Pipeline operations                          $    18,791     $    17,483        $    34,960     $    32,731
       Terminaling operations                            34,161          20,955             66,061          42,387
                                                    -----------     -----------        -----------     -----------
                                                    $    52,952     $    38,438        $   101,021     $    75,118
                                                    ===========     ===========        ===========     ===========
     Business segment profit:
       Pipeline operations                          $     9,545     $     9,230        $    16,813     $    16,467
       Terminaling operations                            12,326           5,729             23,393          11,414
                                                    -----------     -----------        -----------     -----------
         Operating income                                21,871          14,959             40,206          27,881
       Interest and other income, net                     3,388              82              4,096             141
       Interest expense                                  (4,043)         (2,961)            (8,764)         (5,980)
                                                    -----------     -----------        -----------     -----------
         Income before minority interest,
           income taxes and extraordinary
           item                                     $    21,216     $    12,080        $    35,538     $    22,042
                                                    ===========     ===========        ===========     ===========
</TABLE>
<TABLE>
<CAPTION>

                                                                                         June 30,      December 31,
                                                                                           2001            2000
                                                                                       ------------    ------------
                                                                                              (in thousands)
<S>                                                                                    <C>             <C>
     Total assets:
       Pipeline operations                                                             $    107,962    $   102,656
       Terminaling operations                                                               441,870        272,407
                                                                                       ------------    -----------
                                                                                       $    549,832    $   375,063
                                                                                       ============    ===========
</TABLE>


7.   DERIVATIVE INSTRUMENTS

     Effective  January 1, 2001,  the  Partnership  adopted  the  provisions  of
     Statement of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting
     For Derivative  Instruments and Hedging Activities",  which establishes the
     accounting and reporting standards for such activities. Under SFAS No. 133,
     companies must recognize all derivative  instruments on their balance sheet
     at fair value.  Changes in the value of derivative  instruments,  which are
     considered  hedges,  are  offset  against  the  change in fair value of the
     hedged item through earnings,  or recognized in other comprehensive  income
     until the hedged item is recognized in earnings, depending on the nature of
     the  hedge.  SFAS No.  133  requires  that  unrealized  gains and losses on
     derivatives not qualifying for hedge accounting be recognized  currently in
     earnings.  On  January  1,  2001,  the  Partnership  was not a party to any
     derivative contracts; accordingly, initial adoption of SFAS No. 133 at that
     date did not have any effect on the  Partnership's  result of operations or
     financial position.

     In March of 2001, a wholly-owned subsidiary of the Partnership entered into
     two contracts for the purpose of locking in interest  rates on $100 million
     of anticipated  ten-year public debt offerings.  As the interest rate locks
     were not designated as hedging instruments  pursuant to the requirements of
     SFAS No. 133, increases or decreases in the fair value of the contracts are
     included as a component of interest and other income, net. On May 22, 2001,
     the contracts were settled  resulting in an aggregate gain of $3.8 million.
     For the three and six months ended June 30, 2001, gains of $3.2 million and
     $3.8 million, respectively, were recorded on these contracts.

<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------------------

     This  discussion  should  be  read in  conjunction  with  the  consolidated
     financial statements of Kaneb Pipe Line Partners,  L.P. (the "Partnership")
     and notes thereto included elsewhere in this report.

     Operating Results:

<TABLE>
<CAPTION>
     Pipeline Operations
                                                         Three Months  Ended                 Six Months Ended
                                                              June 30,                           June 30,
                                                     ---------------------------        ---------------------------
                                                         2001           2000                2001           2000
                                                     -----------     -----------        -----------     -----------
                                                                             (in thousands)

<S>                                                  <C>             <C>                <C>             <C>
     Revenues                                        $    18,791     $    17,483        $    34,960     $    32,731
     Operating costs                                       7,105           6,028             13,908          11,842
     Depreciation and amortization                         1,314           1,291              2,613           2,584
     General and administrative                              827             934              1,626           1,838
                                                     -----------     -----------        -----------     -----------
         Operating income                            $     9,545     $     9,230        $    16,813     $    16,467
                                                     ===========     ===========        ===========     ===========
</TABLE>


     Pipeline revenues are based on volumes shipped and the distances over which
     such volumes are  transported.  For each of the three and six month periods
     ended June 30,  2001,  revenues  increased  7%,  compared  to the same 2000
     periods,  due to  increases  in  barrel  miles  shipped  and  increases  in
     terminaling  charges.  Barrel miles totaled 4.8 billion and 4.5 billion for
     the  three  months  ended  June 30,  2001 and 2000,  respectively,  and 8.9
     billion and 8.4  billion  for the six months  ended June 30, 2001 and 2000,
     respectively.

     Operating  costs,  which  include  fuel  and  power  costs,  materials  and
     supplies,  maintenance  and  repair  costs,  salaries,  wages and  employee
     benefits,  and property and other taxes, increased by $1.1 million and $2.1
     million  for  the  three  and  six  month  periods  ended  June  30,  2001,
     respectively, when compared to 2000, due primarily to increases in fuel and
     power costs and expenses from  pipeline  relocation  projects.  General and
     administrative   costs,   which   include   managerial,   accounting,   and
     administrative  personnel  costs,  office  rental  and  expense,  legal and
     professional costs and other non-operating costs,  remained relatively flat
     for the three and six month periods  ended June 30, 2001,  when compared to
     the same prior year periods.


     Terminaling Operations

<TABLE>
<CAPTION>
                                                         Three Months  Ended                 Six Months Ended
                                                              June 30,                           June 30,
                                                     ---------------------------        ---------------------------
                                                         2001           2000                2001           2000
                                                     -----------     -----------        -----------     -----------
                                                                             (in thousands)

<S>                                                  <C>             <C>                <C>             <C>
     Revenues                                        $    34,161     $    20,955        $    66,061     $    42,387
     Operating costs                                      15,177          10,976             30,029          22,442
     Depreciation and amortization                         4,637           2,670              9,089           5,352
     General and administrative                            2,021           1,580              3,550           3,179
                                                     -----------     -----------        -----------     -----------
         Operating income                            $    12,326     $     5,729        $    23,393     $    11,414
                                                     ===========     ===========        ===========     ===========
</TABLE>


     On January 3, 2001, the  Partnership,  through a  wholly-owned  subsidiary,
     acquired  Shore  Terminals  LLC  ("Shore")  for  $107  million  in cash and
     1,975,090  Partnership  units  (valued  at  $56.5  million  on the  date of
     agreement  and its  announcement).  Financing  for the cash  portion of the
     purchase  price was supplied under a new $275 million  unsecured  revolving
     credit  agreement  with a  group  of  banks.  See  "Liquidity  and  Capital
     Resources".  Shore owns seven  terminals,  located in four  states,  with a
     total tankage capacity of 7.8 million barrels.  All of the terminals handle
     petroleum products and, with the exception of one, have deep water access.

     Terminaling   revenues  increased  by  $13.2  million  and  $23.7  million,
     respectively,  for the three and six month  periods  ended  June 30,  2001,
     compared to the same 2000 periods due to the Shore  acquisition and overall
     increases in  utilization at existing  locations,  the result of relatively
     favorable  market  conditions.  Average annual tankage utilized for the six
     months ended June 30, 2001 increased to 30.1 million barrels,  up from 20.8
     million  barrels for the comparable  prior year period.  For the six months
     ended June 30,  2001,  average  annualized  revenues  per barrel of tankage
     utilized  increased  to $4.42 per barrel,  compared to $4.10 per barrel for
     the same prior year period, also the result of favorable market conditions,
     when compared to the first six months of 2000.

     For the three and six months ended June 30, 2001, operating costs increased
     by $4.2 million and $7.6 million,  respectively,  when compared to the same
     2000 periods,  the result of the Shore acquisition and increases in volumes
     stored.  General  and  administrative  costs  for each of the three and six
     month periods ended June 30, 2001, increased by $0.4 million, when compared
     to the same 2000 periods due to the Shore acquisition.

     Total tankage  capacity  (38.3 million  barrels at June 30, 2001) has been,
     and is  expected  to remain,  adequate to meet  existing  customer  storage
     requirements.  Customers consider factors such as location,  access to cost
     effective  transportation  and quality of service,  in addition to pricing,
     when selecting terminal storage.


     Interest Expense

     For the  three  and six  months  ended  June  30,  2001,  interest  expense
     increased by $1.1 million and $2.8 million,  respectively,  compared to the
     same  2000  periods,  due to  increases  in debt  resulting  from the Shore
     acquisition  (see "Liquidity and Capital  Resources"),  partially offset by
     overall declines in interest rates.


     Liquidity and Capital Resources

     During  the first six months of 2001,  the  Partnership's  working  capital
     requirements for operations,  capital expenditures (excluding acquisitions)
     and cash distributions were funded through the use of internally  generated
     funds.

     Cash provided by operations was $53.3 million and $32.6 million for the six
     months  ended June 30, 2001 and 2000,  respectively.  Capital  expenditures
     (excluding  acquisitions)  were $6.2  million for the six months ended June
     30,  2001,  compared  to $2.9  million  during  the same 2000  period.  The
     Partnership  anticipates that routine maintenance capital expenditures will
     total approximately $12 million to $15 million (excluding acquisitions) for
     the year ending December 31, 2001.

     In December of 2000, the Partnership entered into a credit agreement with a
     group of banks that provides for a $275 million unsecured  revolving credit
     facility  through  December  2003.  The credit  facility  bears interest at
     variable rates and has a variable commitment fee on the unutilized amounts.
     The credit facility contains operational and financial covenants, including
     limitations  on  investments,   sales  of  assets  and  transactions   with
     affiliates.  Absent an event of  default,  the  covenants  do not  restrict
     distributions to unitholders. At June 30, 2001, $253.7 million was drawn on
     the  facility  at an  interest  rate of 4.81%,  which is due in December of
     2003.

     The $128 million of first mortgage notes  outstanding at December 31, 2000,
     which were due in varying amounts from 2001 to 2016, were repaid in full in
     January of 2001 with the proceeds  from the $275 million  revolving  credit
     facility.  Under the  provisions  of the mortgage  notes,  the  Partnership
     incurred a $6.5 million  prepayment  penalty,  before minority interest and
     income taxes, which was recognized as an extraordinary expense in the first
     quarter of 2001.

     In August of 2000, a  wholly-owned  subsidiary of the  Partnership  filed a
     shelf  registration  statement  on Form S-3 for the  issuance of up to $500
     million  of  public  debt  securities.  In March of 2001,  this  subsidiary
     entered into two contracts for the purpose of locking in interest  rates on
     $100 million of the anticipated  ten-year public debt offerings.  In May of
     2001, the Partnership announced that, due to increases in ten-year Treasury
     rates, coupled with the declines in floating interest rates, it has elected
     to defer  issuance  of the public debt  securities.  On May 22,  2001,  the
     contracts were settled resulting in an aggregate gain of $3.8 million.  For
     the three and six months  ended June 30,  2001,  gains of $3.2  million and
     $3.8 million, respectively, were recorded on these contracts.

     The  Partnership  makes  distributions  of  100% of its  Available  Cash to
     Unitholders and the general partner.  Available Cash consists  generally of
     all  the  cash   receipts  less  all  cash   disbursements   and  reserves.
     Distributions  of $0.70 per unit were  declared to all  Unitholders  in the
     first and second  quarters  of 2001 and $2.80 per unit was  declared in the
     calendar year 2000.

     The Partnership  expects to fund future cash  distributions and maintenance
     capital  expenditures  with existing cash and  anticipated  cash flows from
     operations.  Expansionary  capital  expenditures  are expected to be funded
     through  additional   Partnership  borrowings  and/or  future  public  unit
     offerings.

     Additional information relative to sources and uses of cash is presented in
     the financial statements included in this report.


     Allocation of Net Income and Earnings

     Net income or loss is allocated  between limited partner  interests and the
     general   partner  pro  rata  based  on  the   aggregate   amount  of  cash
     distributions declared (including general partner incentive distributions).
     Beginning in 1997,  distributions  by the  Partnership  of  Available  Cash
     reached  the Second  Target  Distribution,  as  defined in the  Partnership
     Agreement,  which entitled the general partner to receive certain incentive
     distributions  at different  levels of cash  distributions.  Net income per
     Unit  shown on the  consolidated  statements  of income are  calculated  by
     dividing  the  limited  partners'  interest  in net income by the  weighted
     average number of Units  outstanding.  If the allocation of income had been
     made as if all income  had been  distributed  in cash,  net income per Unit
     would  have been  $0.99 and $0.64 for the three  months and $1.39 and $1.16
     for the six months ended June 30, 2001 and 2000, respectively.


     Recent Accounting Pronouncements

     In July of 2001,  the  Financial  Accounting  Standards  Board (the "FASB")
     issued  Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  141
     "Business  Combinations",  which  requires  that all business  combinations
     initiated  after June 30, 2001 be accounted  under the  purchase  method of
     accounting.

     Additionally,  in July of 2001,  the FASB issued SFAS No. 142 "Goodwill and
     Other  Intangible  Assets",  which  requires  that  goodwill  no  longer be
     amortized  to  earnings,  but  instead  be  reviewed  for  impairment.  The
     Partnership  is currently  assessing the impact of SFAS No. 142, which must
     be adopted in the first quarter of 2002.

     Also,  the FASB has  voted to issue  SFAS No.  143  "Accounting  for  Asset
     Retirement   Obligations",   which   establishes   requirements   for   the
     removal-type  costs associated with asset  retirements.  The Partnership is
     currently  assessing  the impact of SFAS No. 143,  which must be adopted in
     the first quarter of 2003.





<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES



--------------------------------------------------------------------------------

Quantitative and Qualitative Disclosure About Market Risk

In March of 2001, a wholly-owned  subsidiary of the Partnership entered into two
contracts  for the  purpose  of  locking in  interest  rates on $100  million of
anticipated ten-year public debt offerings.  As the interest rate locks were not
designated as hedging instruments  pursuant to the requirements of SFAS No. 133,
increases  or  decreases  in the fair value of the  contracts  are included as a
component of interest and other income, net. On May 22, 2001, the contracts were
settled  resulting in an aggregate  gain of $3.8 million.  For the three and six
months  ended  June  30,  2001,   gains  of  $3.2  million  and  $3.8   million,
respectively, were recorded on these contracts.


                           Part II - Other Information

Item 6.  Exhibits and Reports on Form 8-K

         (a)       Exhibits.

                           None.

         (b)       Reports on  Form 8-K

                           None.


                                    Signature

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned.



                                          KANEB PIPE LINE PARTNERS, L.P.
                                          (Registrant)
                                          By  KANEB PIPE LINE COMPANY
                                          (Managing General Partner)


Date:   August 14, 2001                            //s//
                                           Howard C. Wadsworth
                                           Vice President