Colonial Pipeline said Tuesday it is pushing forward with plans to reduce its minimum tender batch size to 15,000 barrels from 25,000 barrels, paving the way for more market players to secure capacity on the US' largest refined products pipeline.
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In a webinar and statement, the pipeline operator also said it intended to adopt sweeping changes announced in August to rules governing shipper history transfers.
Shipper history is a term used to describe the capacity Colonial Pipeline allocates to a particular customer when a shipping cycle is oversubscribed.
The new rules are positioned to effectively end rapid transfers of small stakes of line space shipper history on Lines 1 and 2, according to trade sources.
The proposals still require approval from the US Federal Energy Regulatory Commission and have encountered fierce opposition from some industry players who have profited from the flourishing trade and depend on the flexibility of shipper history transfers.
The rules will be submitted to the regulator next week, Colonial Pipeline said Tuesday.
In a webinar Tuesday morning, a Colonial Pipeline representative told current shippers that the pipeline expects the new rules to come into effect in early December, a regular shipper said.
"FERC can approve in 30 days or require longer if they choose," Colonial Pipeline spokesman Steve Baker said Tuesday in a statement.
CHANGES TO AUGUST PROPOSALS
This fall Colonial Pipeline faced the hottest opposition to its preliminary proposals concerning minimum delivery requirements, particularly on spur lines in the US Southeast.
Ahead of Tuesday's webinar, trade sources said they were prepared to change to a 15,000-barrel minimum batch size, but expressed concern that an increase in minimum delivery size to 5,000 barrels on spur lines would adversely affect smaller gasoline suppliers who deliver smaller batches to multiple Colonial Pipeline spur lines.
A small gas station supplier, for example, might place 25,000 barrels on the line in Houston, but break the 25,000 barrels into 2,500-barrel parcels for delivery to different destinations on separate spur lines.
For smaller shippers, the requirement to send 5,000 barrels would be a significant hurdle to overcome, a Gulf Coast gasoline market participant said recently.
"There was a proposal to change the minimum delivery size to 5,000 [barrels]," Baker said. "That was dropped and will be kept at 2,500 barrels." Colonial Pipeline also axed a contentious proposal to set a minimum origination from a single tank.
"We are no longer proposing creation of a 30,000 barrel minimum origination from a single tankage supplier," Colonial said in the presentation.
Opinion is divided on whether the switch to a smaller batch size augurs well for the Gulf Coast and Northeast refined products markets.
A Gulf Coast gasoline trading source said Monday he did not expect internal operational issues as a result of a move from a 25,000-barrel minimum to a 15,000-barrel minimum batch size, but he did express concern about pipeline delivery delays resulting from the change.
"More new shippers means more potential for more delays loading barrels on the line," the source said. "Already we sometimes hold up loading barrels on the line because we're scrambling to secure 150,000 barrels -- imagine what it will be like when there are more shippers."
Another regular shipper on the pipeline, however, was eyeing the impact on forward ratable deals that have already been concluded for 2016.
"It depends how the market evolves based on this," the shipper said. "There are a lot of forward deals out there at 25,000 barrels."
The changes to minimum batch size will take effect on Colonial Pipeline's 13th Cycle in 2016, the pipeline said.
The shift, however, might result in an increase in liquidity for less frequently traded refined products, according to a heating oil trading source.
A move to 15,000 barrels "is a game changer ... [it] opens up more opportunity for the less liquid grades," the source said.