Colonial proposal would impact line space trade

OREANDA-NEWS. August 10, 2015.Colonial Pipeline proposed a new set of rules this week that will limit the transfer of shipping history and change how new shippers gain access to its 5,500-mile (8,851km) refined products pipeline system connecting Texas to the New York Harbor.

The changes discussed this week with shippers during a webinar could prevent companies that do not have shipping history with the Colonial from receiving allocations based on transferred history and subsequently re-selling that capacity into the actively traded line space market. Line space liquidity has picked up significantly in recent years, but with it shipping history became a commodity.

Colonial said it does not believe shipping history should be "an asset that can be traded" in the webinar it held this week outlining the proposal.

The company proposes that the sale of shipping history on its Line 1 (gasoline) and Line 2 (distillates) must be in connection with the sale of a business. These lines connect Pasadena, Texas, and Greensboro, North Carolina, and are the most liquid line space markets.

Under the proposal, history transfers in connection with a sale of a business must meet a minimum volume of 50,000bl or constitute 100pc of a shipper's history, according to documents provided by a source familiar with the presentation. In addition, the transferring shipper must have maintained a three-year history prior to the transfer, and is not eligible for new shipper status for two years after a transfer.

Colonial also proposes reducing its minimum tender volume to 15,000bl, down from the current 25,000bl. The company would like to also reduce its rounding multiples for allocated batches to 5,000bl from 25,000bl. These measures could allow for more precise and fairer allocation.

Colonial is also considering switching to a simple lottery process independent of shipping history when allocating line space to new shippers. This will give new shippers a better chance of receiving line space. The awarded volume will drop from 25,000bl to 15,000bl under the proposal.

Any changes must be formally proposed in a tariff for approval by the Federal Energy Regulatory Commission (FERC). The pipeline company is seeking feedback on the proposed changes from August 10 to August 21.

Colonial pipeline's Line 1 and Line 2 have been continuously allocated for several years now. As companies began to see line space as a valuable asset, they began trading it as a commodity, creating the line space market. New shippers have emerged to partake in the line space market, leading to a 300pc increase in new shipper status requests to Colonial Pipeline.