Colonial Pipeline Proposes Changes, Fuel Shippers Ask FERC to Intervene

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Written by Jill Sampson for Industrial Info Resources (Sugar Land, Texas)--Colonial Pipeline Company (Alpharetta, Georgia) has proposed new fuel transportation rules to take effect this year. Some stakeholders are objecting to the proposal. Colonial owns and manages the longest fuels pipeline system in the U.S., delivers gasoline, diesel and jet fuel from refineries along the Gulf of Mexico (designated as the Gulf of America by the Trump administration) to cities and airports along 5,500 miles from Houston, Texas, to Linden, New Jersey.

Many of the markets along the pipeline have adapted to the Renewable Fuels Standard (RFS), significantly changing the profile of the fuels used in those markets. Often, however, areas outside urban centers or across a nearby state line can still use conventional fuels at a lower cost to the consumer. To adapt to those RFS market changes, Colonial is proposing that only one seasonal fuel grade would be allowed per product, per cycle. Previously, Colonial had offered overlapping cycles throughout the year with a wider array of fuels available.

Pipeline cycles still would accommodate fuel switching in the summer and fall, and the proposed changes do not modify the tariff rates. Colonial, which maintains the right to set the terms of service, claims these changes will allow for increased capacity, reduce operating risk, and align with practices common among other refined products pipelines.

Colonial has told shippers they would receive commercially acceptable and marketable products at their delivery locations. As a compromise between the pipeline and the shippers, Colonial has proposed that the new testing procedures and limitations on batch overlaps be deferred until September 1, 2025, and a spring terminal transition period will be allowed.

After Colonial's most recent tariff filing, Exxon Mobil Corporation (NYSE:XOM) (Spring, Texas) filed an injunction asking the Federal Energy Regulatory Commission (FERC) to intervene to slow or stop the changes. Additional shippers have since followed suit.

ExxonMobil and others claim the changes will be disruptive to the gasoline supply chain, with the burden of the change being shifted to refiners, shippers, terminals and gasoline consumers. These operational changes will further shift the burden of blending some fuel grades to the terminal, reduce the fuel options for consumers in areas where multiple grades have been available, and limit the overlap of summer and winter fuel deliveries. The change also would cause changes in shippers' product testing requirements before tendering products for transportation on the pipeline. Shippers say they are concerned these operational changes could cause artificial scarcity in some markets.

Colonial indicated in October 2024 that it would be open to exploring a possible sale of the company, as one or more members of the controlling partnership is seeking to exit. Colonial is owned by subsidiaries of KKR & Company (NYSE:KKR) (New York City, New York), Caisse de Depot et Placement du Quebec, Shell plc (NYSE:SHEL) (London, England), IFM Investors and Koch Industries Incorporated (Wichita, Kansas).

Brookfield Asset Management (NYSE:BN) (Toronto, Ontario) appears to be the leader in a $10 billion deal to acquire Colonial Pipeline Company. Brookfield is already invested in pipeline infrastructure in Brazil and Abu Dhabi. Representatives involved in the potential deal were not publicly commenting.

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