Offering

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.

More than a dozen producers, traders and refiners told Reuters they were angry and frustrated that these discount deals have become a mainstay. They declined to be named because they were not authorized to speak publicly.

The contract and regulatory framework of the industry makes it difficult for them to bargain down their own long-term contracts, leaving them paying more for the pipeline space than occasional shippers competing to send oil through the same lines.

This gives the occasional shippers the edge in delivering cheaper crude to potential buyers at the end of the line.

TransCanada’s 700,000 barrelper-day Cushing-Marketlink pipeline — which carries oil from Cushing, Oklahoma, to Texas refineries — has long-term rates of between $1.63 and $2.93 a barrel to transport heavy crude, while occasional shippers typically paid $3.

The industry downturn since 2014 has reduced demand from occasional shippers to use the line at that price.

Earlier this year, TransCanada’s marketing arm offered customers the

Established

Most of the 10 largest US pipeline operators — such as Enbridge and Enterprise Products Partners — have established their own marketing or trading arms that are reselling space.

Last year, TransCanada — which operates the massive Keystone pipeline system — became the most recent player to open a unit to trade oil and resell pipeline space.

A few, such as Plains, have had marketing arms for more than a decade, but in the past they had mostly just sold or traded space that went unused by major producers who had committed to long-term contracts.

On lines such as TransCanada’s, big producers such as ExxonMobil and Suncor Energy account for up to 90 percent of the flow in a pipeline. The remaining 10 percent is sold to occasional shippers.

Suncor and ExxonMobil declined to comment.

With the three-year rout in oil, the volume accounted for in long-term contracts has fallen, and the marketing arms have gone from simply selling occasional space to needing to make big deals to fill the lines.

The practice has become so widespread that even pipeline operators who had previously said they disliked the emergence of the secondary market have now joined the fray.

Magellan Midstream Partners , for instance, in November applied to the FERC to establish a marketing arm, citing the more favorable terms other firms can offer customers.

The move came after Magellan had declined for years to run its own operation out of fear that it would compete with its own customers.

The secondary market is formed by marketing firms signing up to long-term contracts with their parent companies, the pipeline owners. The marketing firms become like committed customers to the line, and pay the same rates for the space as the firms with long-term contracts.

Those marketing firms book a paper loss for shipping the volumes at a discount. But the sales keep the pipelines more full — which makes the parent firm look better to investors, who use pipeline volume as a key metric to judge those firms.

Some companies have felt the pinch of the paper losses.

Genesis Energy LP — a Houstonbased midstream firm with a market cap of $3.6 billion — said its supply and logistics unit saw fourth-quarter revenues fall by 15 percent from a year earlier.