Oil pipeline firms’ discounts rile clients, roil markets

By Catherine Ngai | NEW YORK U.S. pipeline operators are selling their underused space at steep discounts to keep crude flowing – angering shippers and distorting an already opaque market for oil trading. Pipeline firms such as Plains All American (PAA.N) and TransCanada Corp (TRP.TO) move about 10 million barrels of crude around the United States every day. 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. “If I were a producer with a long-term contract, I would be very unhappy at the present time,” said Rick Smead, managing director of advisory services

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