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By Shariq Khan and Nicole Jao
NEW YORK (Reuters) - At least four U.S. gasoline marketers are preparing legal and regulatory challenges to the Colonial Pipeline over proposed changes in fuel shipping terms which the companies say will hurt their margins and drive up fuel prices at the pump, sources familiar with the discussions said.
The Colonial Pipeline is a key artery for shipping fuel from the U.S. Gulf Coast to the East Coast, where refining capacity has shrunk and pipeline shipments are the most cost-effective way to meet regional demand. Changes to the pipeline's operations can have major impacts on markets in the world's largest motor fuel consuming nation.
Colonial last week sought approval from the Federal Energy Regulatory Commission to stop shipping different gasoline grades at the same time, and to eliminate shipments of so-called Grade 5 gasoline. A Colonial spokesperson said the changes would streamline its operations and minimize slowdowns.
Two U.S. gasoline traders said their firms were exploring options for court challenges if Colonial follows through with the changes. Two others said they plan to file protest notices asking FERC to block Colonial's proposed changes due to potential harm to shippers and consumers.
Colonial said the changes proposed last week, and those proposed last month for Midwest markets, should add 15,000 to 20,000 barrels per day of capacity to its main gasoline line. Colonial believes this will help shippers and consumers by moving more fuel on a pipeline that ran full throughout last year, a spokesperson said.
However, Colonial shippers that Reuters spoke with said the changes will hurt their margins, and restrict the overall U.S. gasoline supply pool. They said Gulf Coast refiners would have to reduce blending of additives during times when regulators allow sale of gasoline with a higher Reid Vapor Pressure, or RVP.
The traders requested anonymity as the deliberations are confidential and they are not authorized spokespersons for their firms. A number of Gulf Coast refiners contacted by Reuters, including ExxonMobil, BP, and Phillips 66, refused to comment about the proposed changes.
Colonial said it finds it unlikely a direct link could be found between its proposed changes and increased consumer prices, but added it cannot speak to how and whether shippers pass incremental costs to consumers at the pump.
The company said it does not discuss specific volumes shipped of specific products, although it did that last month when it requested changes to gasoline grades traded in the U.S. Midwest. A number of Colonial shippers have filed protests with FERC about those changes too, citing similar arguments.