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Some Colonial pipeline shippers looking to sell ‘history’ as losses climb

Colonial pipeline

Since 2012, the Colonial pipeline has been running at full capacity and space on the line has been negative since June 7 of this year.  Colonial photo.

Colonial pipeline Line 1 moves gasoline from US Gulf Coast to Atlantic Coast

By Devika Krishna Kumar

NEW YORK, Aug 26 (Reuters) – Some shippers on the largest U.S. refined products pipeline are looking to unload their coveted space after holding onto it has cost them for months, several sources said.

Over the last four years, many small companies rushed to win capacity on Colonial pipeline’s Line 1 – the main artery that moves gasoline from the U.S. Gulf Coast to the Atlantic Coast – in the hope of building “shipper history,” sources at large U.S. refiners said.

Shipping history is crucial for companies that want bigger allocations to send fuel through the pipeline. However, since early June, shipping gasoline has become unprofitable due to bloated East Coast inventories.

The pipeline, which runs from Houston, Texas to Linden, New Jersey, has been running at full capacity since 2012. High demand made history extremely sought-after and often, small companies sold history for large sums, only to apply for it again through a lottery, several market sources said.

Space on the line has been negative since June 7, according to pricing information from S&P Global Platts, the longest since it began tracking prices in early 2015.

The biggest energy companies tend to absorb this type of temporary loss. But for smaller firms, every day that this position is unprofitable makes holding the space costlier.

Linespace – a spot market created to trade capacity on the congested pipeline – typically turns negative when the so-called arb that makes it profitable to move gasoline up from the Gulf Coast to the East Coast shuts. It hit -10.2 cents on Wednesday, the biggest in at least a year, which means a shipper selling space is in effect paying for someone to ship on its behalf.

Inventories on the East Coast are about 17 percent above five-year averages and largely because of that, spot Gulf Coast prices have been stronger than New York Harbor gasoline since early June.

With the pain unlikely to ease anytime soon, sources said some small shippers on the 2.5 million b/d system are shopping around for their history.

“In the near term, it doesn’t look like the market is going to balance out,” said Sandy Fielden, director of research, commodities and energy at Morningstar in Austin, Texas.

On Tuesday, a large U.S.-based trading company made an offer for three new shippers’ history, said one source who represents several small shippers.

“Their view is a long-term view and they said it’s a good time to buy,” the source said.

Shipper history transfers have been hotly debated and Colonial is trying to regulate such deals.

Companies like BP and Noble use the pipeline extensively to transport gasoline. They usually look to take advantage when linespace becomes negative and increase their capacity in preparation for high-demand summer months, market sources said.

Colonial distributes space based on shipper history or the regularity with which customers ship barrels, making it highly coveted. It distributes less space to customers that under-use it.

“As long as that pipeline continues to be congested, linespace offers some opportunity to make money. If you’re a gambler, it’s a great game – it’s a high-stakes game,” said Fielden.

Colonial currently has about 315 shippers on its system, spokesman Ryan Rogers said, compared with 210 shippers last year. He added that the company did not have a breakdown of new shippers versus regular shippers.

Those that move at least an average of 18,750 barrels per cycle are “regular” shippers.

The value of history has been dented by the negative line space. History was worth as much as $600 a barrel earlier this year, brokers said, and has now fallen to about $300.

Once it sells its history, a company needs to wait at least 14 months to complete the full transfer and re-enter the market.

(Reporting by Devika Krishna Kumar in New York, additional reporting by Liz Hampton in Houston; Editing by Dan Grebler)

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