UPDATE 4-Sandy cuts E. Coast fuel supply; refiners, pipelines shut

Mon Oct 29, 2012 4:51pm EDT

* About 70 pct of East Coast refinery capacity shut or
shutting
    * Colonial Pipeline, conduit for Gulf oil products, shuts
lines
    * Gasoline, heating oil futures rise


    By Janet McGurty
    NEW YORK, Oct 29 (Reuters) - The supply of gasoline, diesel
and jet fuel into the U.S. East Coast ground almost to a halt on
Monday as Hurricane Sandy forced the closure of two-thirds of
the region's refineries, its biggest pipeline, and most major
ports.
    Benchmark New York Harbor gasoline futures jumped as
much as 11 cents a gallon As traders feared that power outages
and flooding could leave refiners struggling to restore
operations after the broadest storm ever to hit the United
States. Prices later pared gains to close 2 percent higher.
    With Sandy gaining strength as it nears the coast, refinery,
pipeline, port and terminal operators shuttered or reduced
operations, increasing the risk that bottlenecks would keep
supplies of motor and heating fuel from reaching customers.
   "Given the recent tightness of supplies in New York Harbor,
this weather event is only likely to perpetuate strength in
gasoline prices," BNP Paribas oil analysts Harry Tchilinguirian
and Gareth Lewis-Davies said in a research note.
    "Lost distillate (heating oil and diesel) output in turn
will act to depress inventories further."
    Colonial Pipeline, the nation's largest oil products
pipeline that connects the East Coast to Gulf Coast refiners, is
set to close its main line up to Philadelphia and New York City
by Monday evening, as expected, halting delivery of up to 15
percent of the region's fuel demand. 
    Nearly 70 percent of the region's refining capacity was on
track to be idled. Phillips 66 confirmed it had
completely shut the 238,000-bpd Bayway, New Jersey, refinery,
the area's second-larget plant, known as the "gasoline machine"
for its key role supplying motor fuel to the New York City area.
    Philadelphia Energy Solutions began the precautionary
closure of key units at its 330,000 barrel-per-day (bpd)
Philadelphia refinery, the biggest in the region.
    "Many of the process units have been shut down, others are
in 'standby,' and the remainder have been brought to their
minimum safe operating levels," said Cherice Corley, a
spokeswoman for the refiner.
    Gasoline prices rose and crude oil fell as traders factored
in a supply squeeze, although some analysts said the storm would
also cut heavily into oil demand in the densely populated
region, with most people avoiding driving and airlines grounded
during the storm. 
    Benchmark U.S. gasoline futures closed up 6 cents at
$2.75 a gallon, paring gains slightly after initially jumping as
much as 11 cents. Heating oil gained 1 percent to $3.12 a
gallon in thin trading on the New York Mercantile Exchange's
(NYMEX) electronic platform.
    While oil futures continued to trade electronically, the
NYMEX's open-outcry trading floor was shut due to mandatory
evacuations of low-lying areas around Manhattan's southern tip.
  
    
    LOW HEATING OIL STOCKS
    The storm comes as low inventories of refined products,
especially distillates and heating oil, have stirred concerns of
potential price spikes during the winter heating season.
    
    The East Coast of the United States consumed almost 5.3
million bpd of refined products last year, according to the
Energy Information Administration (EIA). Local refineries
supplied two-thirds of that, while 30 percent came via pipeline
from refineries around the Gulf Coast and Midwest, with the
balance made up by imports.
   "Most of the gasoline and other fuels used in the region are
supplied from refineries on the Gulf Coast, or by international
suppliers" said Roger Ihne, principal in the oil and gas
practice at consultancy Deloitte.
   "The distribution infrastructure, including pipelines and
refined product terminals, are extremely important and could
hamper recovery efforts if significant amounts of this
infrastructure is damaged."
    Sandy, forecast to come ashore late Monday as one of the
strongest storms ever to hit the area, grew slightly stronger
throughout the day, with wind speeds up to a maximum of 90 miles
per hour, 15 mph faster than Sunday.
    The center of the storm was 55 miles (90 kms) east-southeast
of Cape May, New Jersey, and its center was expected to reach
the coast of southern New Jersey within the next three to five
hours, the National Hurricane Center said in an advisory at 4
P.M. EDT (2000 GMT).
    
    WEIGHING THE RISKS
    The precautionary refinery closures are more widespread than
during Hurricane Irene in August 2011, when only the Bayway
plant shut completely.
    While refiners escaped any serious damage during that
hurricane, many fear Sandy's massive storm surge - forecast to
be as high as 11 feet (3.4 meters) - could breach plant defenses
and cause damaging flooding, which can sometimes take weeks to
repair. Abrupt power outages can also damage refinery equipment.
    PBF Energy has opted to reduce rates at its 180,000-bpd
Paulsboro plant in southern New Jersey, which sources said
earlier had been set to shut down. Paulsboro is across the
Delaware River from the Philadelphia area.
    "We weighed the risks inherent in shutting down and
restarting the refineries, and opted to run at reduced rates,"
PBF spokesman Michael Karlovich said in an email. 
    Among other plants affected by shutdowns, Hess Corp 
said it was closing its 70,000-bpd refinery in Port Reading, New
Jersey. 
    Delta Air Lines' 185,000-bpd Monroe Energy plant in
Trainer, Pennsylvania, was monitoring the storm.  
    "We are taking it hour to hour," a source said.
     NuStar Energy and Magellan Midstream Partners
, two of the biggest players in the nation's pipeline and
storage terminal business, also shut terminals along the East
Coast. 
    Brent crude futures for December delivery slipped 11
cents, or 0.1 percent, to $109.44 a barrel, after hitting an
intraday low of $108.51, down $1.04. Brent lost 0.5 percent last
week. U.S. crude fell 74 cents to $85.54 a barrel.
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