Space Oddity - Colonial Pipeline Tries To Limit Shipper Games

The Colonial System is the largest refined products pipeline in the U.S. and delivers as much as 2.7 MMb/d from Gulf Coast refineries to destinations up the East Coast as far as New York. The southern section of the pipeline has been running full for over three years – leading Colonial to apportion space to shippers. A desire to gain shipper support to expand the pipeline led Colonial to propose new tariff clauses limiting trading practices that have developed around apportionment such as the sale of shipper history. Earlier this month (December 3, 2015) the Federal Energy Regulatory Commission (FERC) postponed the latest Colonial tariff proposal pending a user conference to resolve differences between the pipeline and shippers on these issues. Today we explain the oddities of line space and shipper history trading.

In Part 1 of this series we described the East Coast refined product deficit caused by inadequate refining capacity in the region (known as Petroleum Administration for Defense District - PADD I). The shortfall is mostly met from the Gulf Coast region – home to 50% of the nation’s refining capacity - with the balance coming from overseas imports. Movements from the Gulf Coast north to PADD I are made by water or pipeline transport. An average of 0.5 MMb/d of refined products were shipped to the East Coast by tanker and barge over the past 5-years but more than 5 times that volume is shipped from the Gulf by pipeline. That’s because pipeline movements are one third the cost of domestic waterborne transport that is made more expensive by Jones Act shipping regulations. Imports vary seasonally but have averaged 0.9 MMb/d over the past 5-years. But pipelines carry most of the load and the majority is carried on the Colonial pipeline system. We described the geography of the Colonial system stretching from Houston to New York on 4 main pipelines. We also described how the pipeline is batch operated and ships a large number of refined product grades in 5-day cycles.

Because it represents the least expensive option to ship refined products from Gulf Coast refineries to Eastern states and because in 5 southeastern states (Georgia, North Carolina, South Carolina, Nashville and Virginia) it delivers more than 70% of refined product supplies - the Colonial pipeline – particularly its southern section from Houston to Greensboro, NC is nearly always full. In fact it has been that way since at least 2012.