By Joshua Schneyer and Selam Gebrekidan
NEW YORK Nov 27 At 4 p.m. on Oct. 29, as heavy
winds battered the East Coast ahead of Superstorm Sandy's
landfall, the Coast Guard's regional command center on Staten
Island lost power and its hulking backup generators hummed into
Commander Linda Sturgis, who oversees emergency prevention
at the Port of New York, was buzzed through two thick security
doors into the Port's hive-like vessel traffic center, the
maritime equivalent of an air traffic control tower. The Port
had been bracing for Sandy for days, and a few hours earlier,
its Captain had halted all commercial vessel traffic, an
emergency lockdown known as Condition Zulu.
Shipping delays during storms are common. What few people
could foresee was how Sandy's 16-hour assault on a major oil hub
would result in the worst regional fuel supply collapse in
decades, delaying disaster relief, triggering panic-buying, and
raising questions about energy security in the country's most
densely populated area.
The storm's destructive powers were bad enough - knocking
out equipment and power at oil terminals and other energy
infrastructure, while disrupting shipping for days because of
debris in the harbor. But a series of decisions over recent
years had also made the region much more vulnerable. The
shuttering of regional oil refineries, decisions by companies to
keep fuel low stocks because holding extra supply has become
expensive or unprofitable, a recent government downsizing of
emergency reserves, and the heavy reliance of fuel terminals on
a vulnerable electric grid all played into the supply squeeze.
As Sandy approached, Sturgis and her staff were in a unique
position to watch it hammer the harbor. On dozens of blinking
monitors that track marine vessels by satellite, they verified
that oil tankers, barges, container ships and recreational boats
were hunkered down. Then, around 8 p.m. on Monday October 29,
Sturgis's sense of alarm began to rise with the tide.
Since the September 11, 2001 terror attacks on New York,
surveillance of the 1,300 or so vessels that transit the New
York Harbor each day has been beefed up. Live feeds from
military cameras in secret locations allowed Sturgis to watch
Sandy raise sea levels by as much as 14 feet. That, she knew,
would submerge low-lying zones, with frightening implications
for residents. But Sturgis, who also holds a business degree in
supply chain management, recognized another threat too.
"When I saw that surge, I knew it would impact oil
supplies," she says. "The public probably doesn't realize how
critical the harbor is. It's the epicenter of fuel distribution
for the whole Northeast."
Sandy's death toll stands at 132; thousands have been left
homeless; economic damage estimates top $50 billion, and more
than 8 million homes and businesses lost power, some for weeks.
But in some respects, it is Sandy's impact on oil supplies that
posed the biggest and most unexpected challenge to resuming
day-to-day activities, including in areas only lightly damaged.
Experts worry the scenario could become more frequent, in
part due to climate change and a lack of flood protection, but
also due to oil market changes that have eliminated supply
safeguards. Some worry that policy-makers are doing little to
address the threats.
"What really happened with oil supplies here hasn't been
discussed enough," said Malcolm Bowman, oceanographer and storm
surge expert at State University of New York at Stony Brook.
As the heart of the East Coast fuel market, the harbor
covers an area of 125 square miles in New York and New Jersey
and takes in around 1.5 million barrels a day of oil from the
U.S. and overseas. From tanks that hold up to 75 million
barrels, harbor facilities send fuel back out - by barge,
tanker, pipe, truck and rail - to consumers from New Jersey to
Maine. The region of 60 million, which consumes 6 percent of the
world's oil, relies in part on harbor supplies.
THE DAY AFTER
Panic buying depleted stocks at fuel pumps even before Sandy
hit. MasterCard Inc. data shows the volume of fuel sales
in the mid-Atlantic region in the pre-storm weekend topped
average levels by 65 percent. And that was at a time when
two-thirds of Northeast refining capacity was already shut and
pipelines were idled in preparation for Sandy, meaning less fuel
was flowing in the region.
Consumers were right to be worried. Around 8 a.m. on
Tuesday, October 30, the Coast Guard held the first of many
post-storm conference calls with shippers, fuel terminal
operators, and other harbor stakeholders. Reports from the
field were sobering.
Sturgis said Phillips 66, operator of the 238,000
barrel per day Bayway refinery in Linden, New Jersey, reported
that a 13-foot surge of corrosive saltwater had inundated parts
of the plant. Its power was out, and the plant - known among oil
traders as "the gasoline machine" because it produces enough
fuel to meet half of New Jersey's demand - had no timeline for
Another low-lying Harbor refinery, Hess Corp's
70,000 barrel-per-day plant in Port Reading, New Jersey, was
also incapacitated by power outages. Along the coast, two dozen
major fuel terminals were inoperable. Tanks at the terminals
store and blend oil to ship around the region.
Some faced urgent problems. At the Motiva fuel terminal
in Sewaren, New Jersey, partially owned by Shell
, two storm-damaged tanks were leaking diesel - nearly
380,000 gallons in total - into the Arthur Kill waterway.
Phillips and Kinder Morgan, reported smaller spills.
Underground pipes like Colonial Pipeline, which
usually delivers 800,000 barrels per day to the harbor from
Houston, were not damaged but remained shut for days after
terminals lost power.
The Coast Guard told shippers that harbor channels were
still too hazardous to navigate. Buoys were blown out of place,
and debris posed threats to tankers and barges.
"We had to clear debris and chart the bottom," said Gordon
Loebl, Captain of the Port. "Without doing that, tankers could
run aground and create a major oil spill."
The navigational ban also sidelined some 100 petroleum
barges that usually transit the harbor. Some of the flat-hulled
workhorses, which also carry fuel up the East Coast, reach the
length of two football fields and carry up to 100,000 barrels of
fuel - 120 times more than any fuel truck.
RACE TO RECOVER
Following the storm, oil workers were ready to spring into
action, and the Coast Guard, with help from Army engineers and
private pilot vessels, raced to re-open the port. But many
operators found there was no quick fix to the harbor's broader
"It was really bad," said Scott Hellmann, a petroleum barge
dispatcher for Harley Marine, whose work trailer in Brooklyn's
Navy Yard was destroyed. "For about a week, barges just
stopped." Fuel terminals couldn't receive them.
Much of Linden, New Jersey, a city of 41,000 thirteen miles
southwest of Manhattan, was severed from the Northeast fuel
supply chain. Perched beside the hard-hit Arthur Kill, Linden is
the harbor's pipeline crossroads and a staging point for oil
shipments. Storm surges left boats piled up along the town's
main industrial street.
Terminals in the area store bulk deliveries from tankers,
refineries and pipelines and ship them out to 4,000 filling
stations in the region. Power wasn't restored to many Linden
fuel terminals until Nov. 11. Five terminals remained completely
shut as of Monday, government data shows.
SEARCHING FOR GAS
Three days after Sandy, more than 70 percent of filling
stations in New York and New Jersey had no gas for sale,
according to Travel group AAA. As temperatures dropped to near
freezing, the supply of heating oil was also strained.
"Idle harbor terminals were a main bottleneck," said AAA's
Michael Green. "Many had fuel, but it was stuck in storage."
Thousands of fuel truckers were forced to improvise. One
national shipper, Mansfield Logistics, diverted trucks for
hundreds of miles in every direction, bringing fuel from as far
as North Carolina to northeastern customers, some located just a
few miles from the harbor's tanks.
The crunch was worsened because many regional filling
stations lacked generators and couldn't dispense gasoline.
TOO LITTLE, TOO LATE
Government officials tried several fixes. The Environmental
Protection Agency eased clean fuel standards, allowing emergency
vehicles and generators to run on dirtier fuel oil, and federal
officials approved Jones Act waivers to lure fuel cargoes on
foreign-flagged tankers usually barred from transiting between
U.S. ports. BP Plc diverted a Liberian-flagged ship to the
harbor, but only a few other cargoes arrived quickly.
Ultimately, New Jersey imposed fuel rationing based on
license plate numbers. New York City following suit six days
"In New York the rationing was too little, too late," said
Columbia University Business School Professor Awi Federgruen, an
expert on supply chains. "Panic buying took over and people had
no faith that supplies would come back soon. The storm exposed
big faults in the supply chain."
DEFENSES DOWN BEFORE SANDY
Most shipping lanes and facilities around the harbor are now
operating normally, and power has been restored to millions.
The Bayway refinery is restarting, trade sources said.
But Sandy's fuel supply collapse has left a policy conundrum
for officials, now more aware of the region's vulnerability.
New York Governor Andrew Cuomo and New York City Mayor
Michael Bloomberg have said they believe climate change is
increasing the frequency and force of storms in the area.
Cuomo has said he will request federal funding for new
emergency fuel reserves and to build a "smart" power grid that
could restore power quickly after future storms, at a cost of
Bowman, the oceanographer, proposes surge barriers.
Retractable panels he calls "saloon doors" could close during
storms. But the system could cost $20 billion.
Long before Sandy, cracks had begun to appear in the
harbor's energy security. Even as oil and gas drilling booms in
U.S. shale formations, the East Coast has grown less capable of
supplying its own fuel.
Citing poor profit margins, oil companies shuttered three
northeastern refineries over the past two years, eliminating 24
percent of regional capacity. That increases reliance on supply
from tankers and Colonial's pipeline.
Oil companies' penchant for just-in-time fuel deliveries
raises further supply concerns. East Coast gasoline inventories
were already near record seasonal lows before the storm,
government data shows.
Traders that handle fuel in the harbor's wholesale market
have little incentive to keep a surplus in tanks. Oil prices in
the $100-a-barrel range mean it costs millions to store extra
supplies. And since economic malaise has been reducing East
Coast fuel demand, oil companies are less eager to compete for
market share, storing fewer barrels.
Also discouraging surpluses is a market condition known as
backwardation, where gasoline supplies for spot delivery fetch a
premium to those committed for delivery later on. That prompts
companies to keep just enough supply to maintain flexible
operations in normal times.
As Sandy approached, East Coast tank farms held enough
gasoline to meet normal demand for 22 days, 12 percent below a
five-year average level.
The U.S. government has its own emergency fuel stocks, but
federal budget cuts led to a 50 percent reduction in the
Northeast heating oil reserves this year to just 1 million
barrels, enough to meet East Coast demand for only a few days.
And over the last decade, several fuel terminals got rid of
their diesel generators and connected to the regional electric
grid instead, increasing their vulnerability, according to
Captain Andrew McGovern of the Sandy Hook Pilots, who help
direct vessels through the harbor.
LESSON FROM TEXAS, ROTTERDAM
After two hurricanes hit the New York region in less than two
years, the region could look south for energy security ideas.
When Hurricane Ike hit Texas in 2008, energy companies and
emergency responders near a refining hub were ready, after
storms Katrina and Rita in 2005 had hammered the energy
As Ike approached, state governments and oil companies
stationed fuel storage tanks and pumping trucks along evacuation
routes. Utilities gave priority to restoring power to
refineries, fuel terminals and gas stations, after tending to
hospitals and relief centers. Some oil companies took the
precaution of installing barriers or levees around their
operations. Others readied meals and housing for their personnel
to bring plants back quickly.
"Power and people, these are the two key things after a
storm. To get the infrastructure going again, get power restored
and get people to run it," said Bruce Bullock of the Maguire
Energy Institute at Southern Methodist University in Dallas.
Japan, where last year's tsunami triggered a nuclear
meltdown and a fuel squeeze, is spending $2.4 billion to enhance
energy security, including expanding emergency oil reserves.
In Rotterdam, Europe's top oil port, energy infrastructure
is located at least 10 to 20 feet above sea level for
protection. Fuel terminals have back-up generators, and a 450
million euro floating barrier can be closed when waters rise.
In Holland, "(w)e are born with the idea that the sea is a
threat," said Jentsje Van der Meer, a Dutch coastal engineer who
helped Chevron build a levee that protected its Mississippi
refinery from Katrina.
"We're prepared even for the storm that only happens once
every 10,000 years."