June 28, 2017


Oil pipeline firms' discounts rile clients, roil markets (Catherine Ngai, 6/27/17, Reuters)

For pipeline operators to secure financing to build pipelines and storage facilities, they need oil producers, refiners and traders to sign long-term contracts to use space on the pipelines.

Pipeline firms can then use the guaranteed revenue from those contracts as collateral. Firms shipping on the pipeline have historically benefited from the long-term deals because they offered a discount compared to the price of buying space occasionally.

But now, in the wake of a two-year oil price crash, pipeline firms are still struggling to keep their lines full. So their marketing arms are offering steep discounts to ad-hoc buyers of pipeline capacity - which irritates customers whose long-term contracts are now more expensive than spot purchases. [...]

Some of those pipeline firms are offering prices as low as 25 percent of federally regulated rates, creating a secondary market that undercuts shippers with long-term contracts, according to four sources at companies that regularly ship on the pipelines.

The discounts emerged after a global glut and crashing oil prices caused many shippers to let their pipeline contracts lapse or declare bankruptcy.

Posted by at June 28, 2017 5:08 AM


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