Shell warns against proposed Magellan oil trading arm

NEW YORK (Reuters) - The U.S. trading arm of Royal Dutch Shell PLC (RDSa.L) urged regulators to stick to their ruling denying Magellan Midstream Partners permission to form a marketing affiliate, saying the move would undercut other oil shippers.

The U.S. Federal Energy Regulatory Commission (FERC) in November denied a proposal by Magellan (MMP.N) to create a marketing affiliate to buy, sell and ship crude oil, on grounds it would essentially be offering pipeline space "below cost" which is against the law.

Magellan requested a rehearing on Dec. 22, in a filing that rivals have criticized. The companies contend that the request raised broader issues that could jeopardise the existing structure of oil trading on pipelines.

Most of the top 10 largest U.S. pipeline operators have already established their own marketing or trading arms.

Shell U.S. Trading Co, or STUSCO, said in a filing to FERC late on Wednesday that it was concerned about "the negative impact to the market when affiliated marketing and pipeline companies act in a coordinated fashion," because it gives pipeline companies ways to get around federally-set rates.

Shell also asked FERC to hold a generic proceeding, instead of a rehearing of Magellan's proposal, to review marketing and oil trading issues broadly and receive comments from all interested parties.

Last month, Airlines for America and the National Propane Gas Association separately asked FERC to prevent unlawful coordination between pipelines and marketing affiliates and promote transparency.

(Reporting by Devika Krishna Kumar in New York; Editing by Tom Brown)