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FERC chairman calls for rethink of oil pipeline allocation after summer jet fuel gaps

Highlights

Glick says allocating by past use 'needs to be addressed'

Reno airport sought emergency FERC order to address supply

US Federal Energy Regulatory Commission Chairman Richard Glick told US senators Sept. 28 that the process of allocating oil pipeline space based on past use needs to be reexamined in light of jet fuel shortages seen at Nevada's Reno-Tahoe International Airport this summer.

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Allocating pipeline space based on last year's demand meant that faster-to-recover gasoline and diesel took up larger shares than jet fuel by the time air travel demand picked up.

The Reno airport and several major airlines asked FERC in August for an emergency order to increase jet fuel allocations to prevent flight cancellations, while gasoline and diesel shippers said they also urgently needed the pipeline space (OR21-10). FERC ultimately declined to act, calling the supply disruption a commercial issue, not an emergency.

But Glick said he still wants to dig into the issue to prevent any similar disruptions next summer.

"I think this issue of historic use needs to be addressed," he said during a Senate Committee on Energy & Natural Resources hearing on FERC jurisdiction.

"I raised it as an issue at a technical conference we had earlier in the year," he continued. "I think we needed a different approach to allocating capacity because of the different anomalies and you have my commitment that we will take a look at that [and] hopefully act before next summer."

Glick made the comments in response to a question by Senator Catherine Cortez Masto, Democrat-Nevada, who asked him what actions FERC was taking to "help reestablish normal access to fuel among the different transportation sectors" and what Congress could do to prevent future shortages.

Pandemic strain

Like many oil product pipelines, Kinder Morgan's SFPP North Line, which supplies the Reno airport, allocates space to shippers on a rolling 12-month history. Last year's plunge in air travel demand meant jet fuel allocations on the system shrank while diesel and gasoline allocations took larger shares, as those products were affected less severely by pandemic lockdowns and recovered more quickly.

The Reno airport, along with six major airlines, Federal Express, World Fuel Services, and two airline trade groups asked FERC in a July 26 filing for emergency relief to address the supply disruptions. They asked FERC to order SFPP to immediately give jet fuel priority in transportation and provide an additional 541 b/d of jet fuel capacity above the already scheduled shipments until Sept. 6.

SFPP responded to the filing that it recognizes the strain the pandemic has placed on all stakeholders dependent on its pipeline system but that it must abide by its set pro-rationing policy. It said it would not be able to deviate from its policy and schedule absent an order from FERC.

West Coast refiners Chevron Products, Marathon Petroleum, and Phillips 66 urged FERC to "carefully consider whether the alleged emergency is unique to the jet fuel consumer community and whether the requested emergency relief would exacerbate problems with other commodities markets more than it would solve with jet fuel alone."

Pilot Travel Centers and Pro Petroleum, which ship diesel on the North Line, similarly urged FERC to decline the request, as it would be singling out a single shipper class for special treatment when all users of the pipeline have been hit by unprecedented demand destruction and uncertain recoveries.