By Kristen Hays
HOUSTON, March 8 (Reuters) - Executives from ColonialPipeline, which runs the main fuel artery for the U.S. AtlanticCoast, will be questioned by customers and regulators onWednesday after worsening congestion spawned secondary marketsfor space on the system, driving up costs for wholesale dieseland gasoline buyers.
Refiners, retailers and trading houses have jockeyed to movebarrels in an increasingly competitive race for space on theline since a 300,000 barrel per day expansion between 2011 and2013 failed to ease traffic as shippers increased on the 2.5million bpd system.
Customers including Costco Wholesale Corp complainthat so-called line space trading adds business costs, promptinga rare hearing at the Federal Energy Regulatory Commission.
"We have very sophisticated customers. Of course they'veadapted to the system as it is. They are serving themarketplace," Colonial's Chief Financial Officer David Doudnatold Reuters.
Competition is so tough that so-called line space - a spotmarket - has sold for 15 cents or more per gallon. That meansthe person who buys half of another's 100,000 barrels ofallotted space spends $314,999 on top of Colonial's per-barrelrate to move fuels.
That could amount to millions of dollars a year in extracosts.
Even costlier is a more long-term secondary market thatsprung from Colonial's perpetual crowding: shipper historytransfers that allow newer players a way to access spaceallocated to bigger players.
FERC may have to help resolve the long-simmering conflictover access.
Although Colonial does not participate in or profit fromsuch shipper-to-shipper trading, Elisabeth Myers, an adjunct lawprofessor at American University, said the company benefits fromthe efficiency.
"They do in fact have skin in the game because this iswhat's making scarcity of capacity on their system workable forshippers," she said.
Colonial countered that it does not benefit from that andaims to provide a fair system.
Ahead of the hearing, Colonial CFO Doudna said it wasquietly shopping a multibillion-dollar expansion proposal toshippers.
Doudna conceded an expansion would help because newershippers could get space without paying others for it. Anexpansion would take three to five years.
The privately-held carrier, owned in part by affiliates ofKoch Industries, Royal Dutch Shell, KKR & CoLP, is in no rush, he said.
"We need to find the right project at the right price withthe right commitments," he said.
(Reporting by Kristen Hays; editing by Grant McCool)
