Colonial Pipeline Tuesday said its product loss allocation charge for long-haul deliveries will increase to 18 cents/barrel from 16 cents/b on August 1 due to many factors, including Hurricane Sandy last fall.
The Houston-to-New York pipeline said it maintains the Shipper Product Loss Account for "reimbursing shippers for the actual cost of product losses and downgrades."
The short-haul product loss allocation charge will remain unchanged at 4 cents/b, the company said in a notice to shippers.
The product loss fee is not associated with pipeline allocations for when the lines are above capacity, but rather with a shipper's gains or losses in product during normal shipments, spokesman Steve Baker said in a email Tuesday.
"The product-loss allocation charge is influenced by price volatility, operational variations, and measurement," he said. "Many factors, including last fall's hurricane, have impacted our need to raise the amount at this time."
The last increase happened May 1, 2011, when it rose from 12 cents/b to 16 cents/b, which shippers at the time said cost about $1,000 on 25,000 barrels, a typical trade volume.
Traders said the purpose is to sort out losses that occur between counterparties, or in general, due to cross-product contamination.
Contamination, for example, may come from heating oil at up to 2,000 parts per million sulfur slipping into 15 ppm ultra low sulfur diesel, causing a "transmix" product cut that has to be downgraded into heating oil.
One jet trader said shipment of high sulfur diesel grades have dropped dramatically in recent years because of government regulation, causing traders of 3,000 ppm jet fuel to bear more of the transmix cost.
"Shipping jet has become a more costly thing because of transmix," he said. "In past, we would share transmix with diesel shippers. It's now almost the only high sulfur product, so you're the one downgrading the other products, so you're the one responsible."
A second jet fuel trader agreed, calling it "sort of a draconian transmix policy."
They said the trend is happening in most systems, but especially Colonial, which has the nation's largest pipelines.
Colonial's pipeline system transports gasoline, diesel and jet fuel from the US Gulf Coast through the southeastern US to the northeastern US and the New York Harbor market.
Colonial Pipeline has been raising the charge as product prices have risen in the last year, moving on November 1, 2010, to 12 cents/b from 8 cents/b. The year earlier, Colonial reduced the long-haul charge from 17 cents/b, partly because of a decrease in product prices at the time.
