FERC rejects Colonial Pipeline's bid to streamline gasoline grades

The US Federal Energy Regulatory Commission rejected Colonial Pipeline's proposed tariff modifications that would have changed how the company handles different gasoline grades with varying Reid Vapor Pressure specifications -- dealing a setback to the pipeline operator's attempt to streamline operations and increase capacity by up to 10,000 b/d.

FERC rejected Colonial's revised tariff without prejudice following a paper hearing, according to an order issued Nov. 3. The proposed changes, which Colonial filed in March, aimed to eliminate overlapping RVP variants during transportation cycles and modify delivery specifications from requiring "substantially the same" product to "merchantable" product compliant with destination regulations.

The decision affects one of the largest US refined product pipelines, which transports about 2.5 million b/d of gasoline and other petroleum products from Houston-area refineries to destinations throughout the Gulf Coast, Southeast, Mid-Atlantic, and Northeast regions via its 5,500-mile system, according to the filing.

"The benefits that Colonial claims these proposals would create are outweighed by the burdens on shippers," FERC wrote in its order, adding that the proposals would leave shippers with greater uncertainty about the product specifications they would receive at delivery points.

The commission determined Colonial's tariff filing constituted an "integrated package" that must be accepted or rejected as a whole, preventing any partial approval of the proposed changes. Colonial can refile its proposals with modifications addressing FERC's concerns.

"Colonial is reviewing FERC's ruling that was issued Monday evening related to proposed changes to product specifications and we have no further comment at this time," company spokesperson David Conti said in a statement.

Operational changes

Colonial had argued its proposed changes would improve pipeline integrity by reducing pressure cycling risks associated with transporting multiple RVP variants during the same cycle while creating additional system capacity.

The pipeline operator said eliminating overlapping grades would free up capacity on lines that are fully utilized during peak demand periods, potentially benefiting consumers through improved supply flows. Colonial's Line 1 carried roughly 1.4 million b/d of gasoline, and Line 2 carried 1.2 million b/d of distillates, from the US Gulf Coast to Greensboro, North Carolina at the time of its proposal filing in February.

Major oil companies, including BP, ExxonMobil, and Chevron, protested the proposals, arguing they would economically burden shippers by forcing them to tender higher-value, lower-RVP products while receiving lower-value, higher-RVP products at delivery points.

"Protestors represent that the proposals increase shipper costs by requiring them to purchase or refine higher-value product for tender at origin than presently required," FERC stated in its order. The commission noted that protesters estimated the new testing requirements could cost shippers between 0.1 and 1.2 cents/gal to produce gasoline meeting the proposed specifications during the winter months.

FERC said Colonial had failed to "present any studies establishing a baseline for system integrity risk from pressure cycling or projecting the impact of its proposed operational changes on that risk" and "no data or other information explaining these statistics, making it impossible to understand the time period studied or the actual, as opposed to relative, severity of pressure cycling year round."

Blending concerns

FERC also found that the protestors' concerns about Colonial's proposals, which favored its affiliated butane blending operations, were particularly troubling. The commission noted that Colonial's blending activities at facilities in Powder Springs, Georgia, and Greensboro, North Carolina, create "swell," or additional volume resulting from butane injection, which increases RVP.

Under Colonial's proposal, shippers would be required to tender lower-RVP, higher-value products at origin while potentially receiving higher-RVP, lower-value products at delivery due to Colonial's downstream blending operations. The pipeline would retain the incremental swell barrels.

"Where shippers today are allowed to ship gasoline products with higher RVP and have that higher-RVP product delivered to their desired downstream markets, Colonial's proposal will force some shippers to meet a standard that is not required for their downstream market," ExxonMobil stated in its March protest filing.

ExxonMobil and other shippers argued that "the only difference is that now Colonial, or more likely its marketing affiliate, is recouping the value resulting from blending butane into gasoline to make up the difference in RVP between the origin and destination markets."