UPDATE 1-Kinder Morgan ships biodiesel in Plantation pipe

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NEW YORK, June 30 (Reuters) - Kinder Morgan Energy Partners LP (KMP.N) said on Tuesday it became the first U.S. company to make a commercial shipment of a biodiesel blend through a pipeline and it will move the fuel to and from southern states along the Plantation duct.

Kinder sent a 15,000-barrel batch of B5 -- fuel that was 5 percent biodiesel and 95 percent diesel -- from Collins, Mississippi, to Athens, Georgia, and Roanoke, Virginia. The product passed quality tests.

The volume of further shipments will be "driven by customers," Kinder spokeswoman Emily Mir Thompson said by telephone.

Demand for the fuel has risen as federal mandates call for increasing levels of biofuels like biodiesel to be blended into petroleum fuels over time.

Kinder said it was optimistic it would be able to ship biodiesel on Plantation's lateral Tennessee line serving both Chattanooga and Knoxville.

The company initially will focus on moving the blends on parts of the Plantation system that transport only gasoline and diesel because of concerns about possible "trailback" of biodiesel into subsequent jet fuel batches.

"If we can work through those issues, we will evaluate the possibility of moving blended biodiesel to every market on the Plantation system," said products pipeline president Tom Bannigan. Plantation carries oil products from refineries along the Gulf of Mexico to states in the Southeast. (Reporting by Timothy Gardner; Editing by Walter Bagley)