Oil and Gas

UPDATE 4-Colonial delays gasoline pipeline restart to next week after leak

* Largest spill on Colonial line in 20 years

* Restart expected by next week

* Gasoline futures rise, cash prices in NY higher (Adds states of emergency in Georgia and Alabama)

NEW YORK, Sept 15 (Reuters) - Colonial Pipeline Co, operator of the largest refined products pipeline system in the United States, said on Thursday it would delay until next week the full restart of its main gasoline line bringing fuel to the East Coast after a 6,000-barrel leak in Alabama.

The company on Friday shut its main gasoline and distillate lines, which are critical to East Coast product supply, after the leak in Shelby County, Alabama, which appears to be the largest spill for this line in 20 years.

Colonial had originally estimated a full restart of Line 1, which runs to Greensboro, North Carolina from Houston, by this weekend, but work was delayed on Wednesday evening and into Thursday morning because of gasoline vapors at the site, the company said.

Traders are bracing for tighter supply in the U.S. East Coast and Southeast markets such as Georgia and Virginia if a full restart of the gasoline line is delayed further, particularly as the outage comes around refinery maintenance season when refiners are producing less fuel.

Gasoline prices soared on the news of the delay, with U.S. gasoline futures rising as much as 6 percent to a session high of $1.4433 a gallon. Gasoline margins 1RBc1-CLc1 also soared to the highest since June, and New York Harbor cash prices rose as Gulf prices weakened, traders said.

“If it were to go on a lot longer, it would be a hairy situation,” said Robert Campbell, head of oil products markets at consultancy Energy Aspects in New York.

The cause of the leak has not yet been determined, Colonial spokesman Steve Baker said in an email. The company noted that it was “disappointed” that further progress had not been made in the repairs. The distillate line has since been fully restored, and Colonial is pumping batches of gasoline on that line as a workaround.

Separately, shippers have begun moving fuel from the refinery-rich Gulf Coast to the demand-heavy East Coast via tanker, according to a Colonial shipper. Those vessels, because they are required to be U.S.-flagged under the Jones Act, are typically more expensive than transport via pipeline.

Docks on the Gulf Coast are “already getting busy” after the outage, a source at a U.S. refiner said.

Inventories on the East Coast are still above the 5-year average, but traders say that could change if the 1.2 million-barrel-per-day gasoline line continued to operate at reduced rates for a prolonged period.

“We do have the inventory to manage it for the time being, but we’re going to be under a fair bit of pressure, and the uncertainty isn’t helpful,” said Campbell.

This is the largest spill on the Colonial line since 1996, when about 22,800 barrels of fuel oil leaked in South Carolina, according to National Transportation Safety Board data.

The governors of both Georgia and Alabama issued states of emergency on Thursday as a result of the spill, allowing waivers of regulations on vehicle transport of fuel. The waivers allow trucks hauling transportation fuel to spend more hours on the road to deliver the fuel.

The U.S. Environmental Protection Agency waived certain requirements for summer-grade gasoline in the Atlanta and Nashville areas on Wednesday to allow Colonial to maximize its ability to ship gasoline.

Colonial said gasoline hauled on Line 2 would be arriving into the southeast on Saturday, and said it expects additional downtime in delivering gasoline ahead of the full restart of Line 1. (Reporting by Devika Krishna Kumar and Jessica Resnick-Ault in New York; Editing by Chris Reese and Richard Chang)