Colonial Pipeline filed a new emergency tariff June 18 that removes an up to $25 million fine but keeps other measures in place to deter shippers from abandoning oil products on its system in the face of weak demand and limited storage options.
The Federal Energy Regulatory Commission ordered Colonial on June 11 to remove several provisions in a 90-day tariff it adopted in response to rapid changes in US fuel markets related to the coronavirus pandemic. One rejected measure would have fined shippers that abandon oil supplies up to $25 million for lost revenues if the pipeline must slow or shut the system while it looks for a home for the orphaned barrels.
"Colonial will continue to enforce all options in our Tariff, including those FERC did approve, to ensure that product without a destination does not impact the system," Colonial said in a June 18 notice. "Those options include the auction or sale of product and demurrage fees."
Trading group Gunvor USA protested Colonial's emergency tariff on May 28, arguing Colonial had not met its burden of demonstrating both that a problem exists on its system that its current tariff could not address and why this "drastic remedy" was justified.
FERC ruled that Colonial had demonstrated that it was facing increased incidents of shippers failing to take delivery and that "increased penalties are necessary to deter this conduct."
However, FERC said Colonial did not sufficiently justify fining shippers for lost revenues, adding that its provisions for determining "volumes lost due to the downtime" were unclear and could result in unjust and unreasonable damages.
The order said state and federal courts were more appropriate venues for contesting such damage claims, not FERC.
Auctions accelerate
Colonial had argued that its typical practice of auctioning barrels abandoned by shippers has become more difficult since March, as limited storage capacity near the end of its system in Linden, New Jersey, increases the risk that it will be unable to find a buyer for the fuel. It said that would force it to slow or shut the major pipeline system while it clears that batch of product through some other means.
Colonial said it has had to conduct 25 auctions to clear stranded oil products between March 16 and May 31 -- equal to all the auctions in 2019 and more than the 18 auctions held in 2018.
Product takes about 20 days to travel the full length of the Colonial route from the Gulf Coast to the Northeast. While shippers can give the generic destination of Linden when they load barrels onto the system, they must identify a specific destination point within three days of delivery.
Shippers that fail to do this face a daily demurrage fee of 25 cents/b for any product that the destination facility will not accept until the product is ultimately cleared from the system.
Colonial's Line 1 carries 1.37 million b/d of gasoline from Pasadena, Texas, to Greensboro, North Carolina, and its Line 2 carries 1.16 million b/d of distillate fuel along the same route.
From Greensboro, the two lines meet the 855,000 b/d multiproduct Line 3 that runs to Linden, New Jersey, and the 504,000 b/d Line 4 that runs to terminals in Virginia and Maryland.
