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UPDATE 2-Colonial Pipeline to cut volumes temporarily after Alabama leak

(Adds analyst comment, market movements, background)

By Devika Krishna Kumar

Oct 17 Colonial Pipeline said on Monday it would cut shipping volumes while it works to restart the section of its main gasoline conduit that was damaged after its biggest leak of the fuel in nearly two decades in Alabama last month.

Prompt New York Harbor gasoline prices and refining margins 1RBc1-CLc1 for making the auto fuel jumped on the news. The line is the main artery for gasoline supplies to the East Coast market.

Colonial, the biggest refined products system in the United States, is responsible for supplying about one-third of the 3.2 million barrels per day of gasoline consumed on the East Coast, according to U.S. Energy Department data.

Allocations on Colonial's Line 1 will be reduced by about 20 percent for 10 days, the company told shippers in a notice.

U.S. gasoline crack spreads, a key metric for margins for U.S. refiners, jumped by 5.3 percent to $13.32 a barrel on news of the reduced volumes. Cash prices for New York Harbor gasoline for prompt delivery was also said to be offered higher.

Still, the impact of the lower supplies would likely be limited because the peak-demand summer driving season is over, said Sandy Fielden, director of research, commodities and energy at Morningstar in Austin, Texas.

The damaged section of the 1.3 million-bpd line that connects the refining hub of the Gulf Coast to the East Coast was shut for more than 12 days after a leak was discovered on Sept. 9.

That outage squeezed supply and caused long lines at the pump in many southeastern U.S. states, prompting complaints of price gouging.

A bypass line was constructed to restart operations while the company repaired the main conduit.

Colonial expects to fully restart the damaged part of the fuel artery by mid-November, company spokeswoman Malesia Dunn said in an email. A draft restart plan has been submitted to federal regulators for approval, she added.

A spokeswoman for the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration declined on Monday to comment on whether it had approved the plan.

The administration said on Friday that Colonial must cut pressure on the line by 20 percent, even after restarting the damaged line, until it could ensure the line could safely operate at full capacity. (Reporting by Devika Krishna Kumar in New York; additional reporting by Jarrett Renshaw and Jessica Resnick-Ault; Editing by Bernard Orr and Richard Chang)

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