Four East Coast refiners shut, cut rates as Sandy nears

NEW YORK Sun Oct 28, 2012 8:13pm EDT

NEW YORK (Reuters) - The second-largest refinery on the East Coast was shutting down on Sunday and three other plants cut output as Hurricane Sandy threatened widespread power outages and a massive storm surge across the region.

Phillips 66 has begun shutting its 238,000-barrels-per day (bpd) Bayway, New Jersey refinery, nicknamed the "gasoline machine" because of its key role supplying motor fuel to the New York City area. The plant, the only one to close during Hurricane Irene last year, should be completely shut by early Monday morning, the company said in a statement.

The region's biggest refinery, Philadelphia Energy Solutions' 330,000-bpd facility in Philadelphia, has begun to reduce rates, according to a source familiar with the plant. The refinery had shut an acid unit but it was unclear by how much rates had been cut at the other units.

PBF Energy reduced output at its Delaware plant and Hess Corp curbed runs in New Jersey, sources said, as Sandy affected operations at refineries that account for two-thirds of the East Coast's 1.2-million-bpd capacity.

While major refineries are built to withstand hurricane-force winds, they are vulnerable to power outages, which can damage units in the case of a "cold shutdown", as well as flood damage if the storm surge accompanying Sandy - forecast to be as high as 11 feet - breaches their defenses.

Oil traders were already factoring in a potential squeeze on fuel supplies. Benchmark gasoline futures jumped 1 percent and heating oil rose 0.6 percent as New York Mercantile Exchange (NYMEX) trading began on Sunday evening, U.S. time. Crude oil prices dipped by 0.4 percent.

See FACTBOX on energy disruptions due to Sandy for complete refinery details:

Sandy, forecast to come ashore late Monday or early Tuesday as one of the widest storms ever to hit the area, is expected to create strong winds and dangerous flooding to the East Coast from the Mid-Atlantic states to New England.

Hurricane Irene, which hit the region in August 2011, caused severe flooding and power outages along the East Coast as well as some refinery disruptions. Phillips 66 closed the Bayway refinery while other refiners cut rates, but the oil industry escaped Irene with relatively little, if any, damage.

The CME Group halted all NYMEX floor trading for Monday, although electronic trade, which makes up the lion's share of the exchange's futures activity, will continue normally.

PIPELINES PREPARE

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 Colonial Pipeline, a critical supply link for the East Coast which carries about 15 percent of the country's gasoline and diesel from Gulf Coast refineries up to the New York Harbor, is preparing for the storm, spokesman Steve Baker said.

The pipeline activated its hurricane preparedness plan on Friday afternoon and has started making sure emergency generators are in place, as well as sandbagging critical areas that may be prone to flooding.

Buckeye Pipeline, which owns and operates about 6,000 miles of oil product pipelines mostly north and west of Philadelphia, has prepared a hurricane contingency plan.

"Buckeye will continue to operate their pipelines as scheduled until the time that it is no longer safe to do so, or power or product availability make it no longer possible to run a particular line section," the company said in a statement.

"Buckeye has secured some generator capability that is being staged strategically to provide temporary power to certain pump stations," it said.

Vessels in and out of some southern and Mid-Atlantic ports are operating under Coast Guard storm conditions.

In Hampton Roads, near Plains All American's 6.6-million-barrel crude and oil products storage facility in Yorktown, Virginia, coastal waters are closed and under code Zulu, the highest warning level. The warning extends from Virginia to the Maryland/Delaware border, with expectations of gale-force winds within 12 hours.

Phillips 66 said it had temporarily shut its Riverhead, New York, and Tremley Point, New Jersey, oil terminals.

The New York Harbor is under Code Yankee, with gale-force winds seen within 24 hours.

REFINERY RATES CUT

PBF Energy began to cut rates by an unspecified amount the crude unit, coker and gasoline-making fluid catalytic cracking unit at its 190,000-barrels-per-day plant in Delaware Cityon, as well as some downstream units, a source familiar with refinery operations said.

"We continue to treat this storm seriously. We have comprehensive preparedness plans in place and will continue to follow them as well," said Michael Karlovich, a spokesman for the company.

The status of PBF Energy's 180,000-bpd Paulsboro plant in southern New Jersey, across the Delaware River from the Philadelphia area, was not immediately clear.

Meanwhile, Hess Corp was to begin cutting rates at its 70,000-bpd refinery in Port Reading, New Jersey, at 6 p.m. EDT (2200 GMT) as a precaution, a company spokesperson said.

Delta Air Lines' 185,000-bpd Monroe Energy plant in Trainer, Pennsylvania was monitoring the storm.

"We have not and do not anticipate changing operation at this juncture," said a source familiar with operations. "We are on the leeward side of the storm's path."

Other industrial facilities were also affected. Dow Chemical Co said it would temporary close three plants in New Jersey ahead of Hurricane Sandy, as well as its East Coast headquarters in Philadelphia and a research facility nearby.

(Reporting by Janet McGurty, Writing by Matthew Robinson and Jonathan Leff; additional reporting by Ernie Scheyder; Editing by Gary Crosse, Maureen Bavdek and Dale Hudson)