FERC OKs lottery for new Spearhead oil line shippers

Thu May 17, 2012 10:43am EDT

* One shipper objected that process gave it little chance

* Line runs from Illinois to Cushing, Oklahoma hub

HOUSTON May 17 (Reuters) - The Federal Energy Regulatory Commission has approved Enbridge Inc's lottery plan for allocating space on a full Spearhead pipeline to a sudden surge of new shippers, a FERC spokeswoman said on Thursday.

Yaltex Oil LLC of Fort Worth, Texas, had objected to Enbridge's lottery for sharing limited space on the 650-mile (1,040-km), 170,000-barrels-per-day pipeline from Flanagan, Illinois to Cushing, Oklahoma, arguing it had little chance under the plan.

Enbridge replied that similar lotteries were in use on other common carrier pipelines facing sudden excess shipper demand and worked well. FERC requires common carrier pipelines to set aside space for new shippers and allocate it in a non-discriminatory way.

Spearhead had not been overnominated for years until plans were announced to begin shipping crude from the glutted Cushing oil storage hub to the main U.S. refining center on the Gulf Coast via a reversed Seaway pipeline, set to start this week.

Shippers then rushed to take advantage of the new outlet from Cushing, delivery point for the New York Mercantile Exchange's benchmark U.S. oil futures contract, to the premium Gulf Coast market, analysts said.

Since April 2011, the number of shippers seeking space on Spearhead has tripled from 13 to 33, and in April shippers proposed sending 4.2 million barrels on Spearhead, 25 times capacity, forcing a 96 percent apportionment, Enbridge said.

Demand for space on Spearhead had fallen when Cushing inventories rose to record levels because of booming U.S. and Canadian oil production and a shortage of outlets from Cushing to the Gulf.

"We find that Spearhead's proposal is just and reasonable," FERC said, adding that the "proposed lottery process is the agreed-upon result of discussions with all of its shippers and no other comments or protests were filed".

FERC said Enbridge's proposal was approved effective last Friday.

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