Meaning
Allocation system used by midstream operators to distribute available pipeline capacity among shippers when total demand exceeds physical transport limits protects the equity of the network. When pipeline prorationing is in effect, each shipper receives a percentage of the available capacity based on historical shipments or current nominations. This allocation prevents single operators from monopolizing transport routes and guarantees fair access to the common carrier infrastructure.
Capacity Allocation
Mathematical formulas calculate individual capacity allotments during periods of high demand or pipeline maintenance. Shippers that navigate pipeline prorationing must adjust their terminal deliveries and upstream production schedules to match their allocated volumes. These adjustments minimize the risk of over-allocating storage resources at the pipeline inlet.
Pipeline Nomination
Pipeline operators require periodic nominations from all active shippers to determine if aggregate requests exceed operating capacity. If the total nominations trigger pipeline prorationing, the operator applies its tariff rules to adjust each shipper’s daily volume. This reduction forces shippers to find alternative transport, such as rail or truck, to move their excess product.
Contractual Consequence
Distribution agreements for crude oil or refined products include specific clauses to handle the supply disruptions caused by these pipeline restrictions. The contract defines pipeline prorationing as a partial force majeure event or a standard supply excuse, exempting the supplier from short-delivery penalties. This provision prevents the supplier from being held liable for volume shortfalls that are beyond its control due to pipeline restrictions.
Under these conditions, the buyer is permitted to source alternative volumes from secondary distributors to maintain its refinery operations, ensuring that the supply chain adapts without legal disputes.
