Exxon challenges Colonial Pipeline on proposed changes to fuel shipping terms

By Nicole Jao and Shariq Khan

NEW YORK (Reuters) -Top U.S. oil major ExxonMobil asked regulators to block changes proposed by the Colonial Pipeline to its fuel shipping terms, citing potential harm to shippers and consumers, a filing with the Federal Energy Regulatory Commission (FERC) showed.

The Colonial Pipeline, a key 5,500-mile (8,851 km) artery for shipping fuel from the U.S. Gulf Coast to the East Coast, this month sought approval from FERC to stop shipping different grades of gasoline at the same time and to reduce the total number of grades it moves on the pipeline.

The changes would mark one of the most significant overhauls on the longest U.S. fuel pipeline, which Colonial says will help it ship more fuel by streamlining operations and minimizing slowdowns. That benefits shippers, the public and the pipeline itself, a company spokesperson said.

However, a number of shippers earlier told Reuters on the condition of anonymity that they were preparing to challenge the proposals.

Exxon, which operates refineries in the U.S. Gulf Coast from which it ships fuel on Colonial, is the first to file a formal protest.

It said the changes would severely disrupt the efficiency of the gasoline supply chain, and argued that Colonial's proposals would directly hit its fuel supply economics by ending shipments of a grade it supplies and by raising costs to meet new specifications for gasoline to be put on the pipeline.

At the same time that Colonial is limiting shippers to supplying more expensive gasoline grades, another change it has sought would allow the pipeline to blend that fuel and supply cheaper grades at destination markets, Exxon argued. "Only Colonial benefits from this proposal," Exxon said in its filing.

In response, a Colonial spokesperson reiterated that the changes would increase pipeline capacity and gasoline supplies, while reducing operational stress and optimizing Colonial's system.

The price consumers pay at the pumps is decided mainly by supply and demand, Colonial said.

"If minor fluctuations occur as other parties in the supply chain seek to protect their margins, we would expect such impacts to be limited to a small number of markets for a short part of the year," Colonial added.

The company intends to file a response with FERC about Exxon's protest on Monday, it said.

(Reporting by Nicole Jao and Shariq Khan in New York; Editing by Deepa Babington and Jamie Freed)