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Argus Colonial Line Space Assessment

What's happening in the market?

Due to the ongoing capacity restraints on the Colonial pipeline, bulk traders have created a new market that values line space by trading Houston origin lots for lots that can be taken off further down the line. Argus has devised a methodology to assess the value of this trade and is now publishing it in the Argus US Products.

Companies that buy or sell gasoline in the US southeast and Atlantic coast downstream markets can use this assessment to value the extra cost imposed by the line space premium. Contracts delivered to regional terminals based on Colonial spot prices have seen new and unpredictable charges due to the premiums to secure space on the pipeline.

These new assessments provide another level of transparency to instantly gauge whether it is in your best interest to ship product on the line or “sell” your allocated space to another party.

How is line space assigned?

Line space on the Colonial pipeline is assigned to parties based on their historical shipping volumes. Parties are not required to use the line space, however, a party is assessed a penalty of approximately 1¢/USG by Colonial for unused line space. In addition to the penalty, Colonial distributes less line space to those under-using parties in the future.

As a result, traders have developed a mechanism to sell physical gasoline in such a way as to protect their future allocation. The Colonial Pipeline does not allow the reselling of actual line space between shippers.

Trading “line space”

In order to structure a trade that effectively values line space, companies will exchange a volume of gasoline in Pasadena, Texas, for an equal volume of gasoline that has both the right and obligation to ship on the Colonial pipeline between Pasadena and Greensboro, NC. The volume can then be removed from the line at any terminal up to and including Greensboro.

Trades typically take place at a ¢/USG value representing the premium paid or discount received in acquiring the line space only. These differentials do not incorporate the tariff paid to Colonial.

The following text regarding the new line space assessment can be found in the Argus US Products methodology and specification guide.

Applications

  • Accurately determine all costs for product delivered at Colonial-sourced terminals on a market-based contract
  • Validate the value of unused space available for sale
  • Analyze the arbitrage between the Gulf coast and mid Atlantic region

Features

  • Timing: Prompt Cbob gasoline shipping cycle
  • Volume: 25,000 bl min
  • ¢/USG
  • Basis: Colonial Line 01: Gasoline line originating in Pasadena, TX and terminating in Greensboro, NC.

Who along the US Gulf coast and Atlantic coast supply chain can benefit:

  • Refiners and gasoline blenders
  • Marketers and jobbers
  • Gasoline distributors
  • Colonial Pipeline shippers
  • Gasoline arbitrage traders, importers, and exporters

 Argus Colonial Line Space

Click to enlarge

This assessment is designed to provide associated parties with an additional layer of transparency regarding the market value of line space along the pipeline. Prices reflect a negotiated spot market value above or below tariff to acquire the effective right to ship barrels from Pasadena to Greensboro. Price is the spread between two legs of a bilateral transaction for physical product, one lot delivered at Pasadena and another delivered at Greensboro. Product may be removed from the line before Greensboro. Assessments do not include tariffs or line-loss. The purchase of line space gives the buyer the effective right and obligation to ship barrels.

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