NEW YORK (Reuters) - A fuel supply crisis stalling the New York City area’s recovery from Hurricane Sandy and reviving memories of the 1970s gasoline shortages stem from multiple factors, ranging from flooding to power outages to a diesel spill.
At the heart of the problem is the fact that Sandy has devastated the energy industry’s ability to move fuel into and around the New York City region, particularly the harbor, by any of the three means that normally supply the area: tanker imports from abroad; pipeline shipments from the U.S. Gulf Coast; or refinery production from the mid-New Jersey area.
The good news is none of these issues appears to be long-lasting. Power is gradually being restored in New Jersey, where much of the key infrastructure is located and New York Harbor barge traffic is expected to resume later Thursday. A key pipeline should resume limited deliveries on Friday. Even flooded refineries should eventually resume production.
The bad news is that the supply crunch may get worse before it gets better. Supplies at gas stations that remained open are slowly running out, and it may be several more days before wholesale fuel supplies get where they need to go. Public Service Enterprise Group Inc, the biggest utility in New Jersey, said it may be up to 10 days to fully restore power. Oil tank trucks are driving three hours to Delaware City to get fuel, but they can only carry up to 9,000 gallons each.
The East Coast consumes about 5.5 million barrels per day (bpd) of fuel, more than a quarter of the country’s total.
Within that, the mid-Atlantic region — termed PADD 1B, and the area hardest hit by the storm — comprises New York, New Jersey, Pennsylvania, Maryland and Washington D.C., and accounts for about a third of the total for the region.
It consumes just over 1 million bpd of gasoline alone, plus another 166,000 bpd of jet fuel, 250,000 bpd of diesel and 133,000 bpd of home heating fuel oil, according to federal government data on final fuel sales in the area.
Two of the region’s refineries remain shuttered after the storm, reducing East Coast capacity by more than 300,000 bpd or about a quarter of its 1.2 million bpd slated capacity. Typically, the area’s six refineries supply a fifth of fuel demand, a share that has shrunk due to recent closures.
The most important plant, Phillips 66’s 238,000 bpd plant in Bayway, just south of Newark, was flooded by Sandy’s storm surge and lost power. The company says power has now been restored and floodwater has receded, but sources say the water damaged critical electrical controls and that limited cogeneration electricity supplies leave it unable to restart.
Hess Corp’s 70,000 bpd refinery, just 10 miles south of Bayway in Port Reading, which runs on gas oil rather than crude, also remains closed due to a lack of power. It is unclear whether the plant sustained any damage that could delay its recovery. Refineries can take weeks to recover from floods.
The area’s four other refineries are running, although the largest in Philadelphia is still below full capacity.
Line 3 of the Colonial Pipeline, the main conduit for moving fuel produced in the Gulf Coast refining hub up the east coast, has been shut since Monday. The line, which runs from Greensboro, North Carolina to Linden, New Jersey, is planning to resume “limited service” on Friday, the company said.
However, it also said that its Linden area terminals — the most critical for delivering fuel into the New York area — sustained some damage from the storm. It is unclear how severe the damage is. It said the Linden facility should restore partial operations on Thursday after bringing in generators.
At its normal operating rates, Colonial can deliver about 825,000 bpd of refined fuel on Line 3. It plans to expand that to 950,000 bpd by 2014.
Perhaps the biggest problem is not producing or shipping the fuel in pipelines, but getting it into the storage tanks and terminals dotted around the New York Harbor, a critical link in the supply chain used to break down large shipments into smaller batches for shipment inland or loading on trucks.
For starters, the harbor — the busiest oil port in the country handling an estimate 900,000 bpd — remains shut to larger ocean going oil tankers.
It reopened earlier on Thursday to fuel barges, although three channels in the lower part of the Harbor — including the heavily-used Arthur Kill, a tank farm-lined waterway separating New York’s Staten Island and New Jersey — remain closed.
Even once the vessels start moving again, it is unclear that they will have anywhere to discharge: at least a dozen major terminals in and near the harbor have been shut because of a lack of power, or because of damage during the storm.
Two tanks at Motiva’s Sewaren site have reportedly spilled over 300,000 gallons of diesel, factors that are likely to delay the restoration of service.
It is not clear how much of the harbor’s estimated 75 million barrel storage tank capacity has been incapacitated due to the storm.
The storm struck at an already delicate moment for the regional market, with stockpiles of motor fuel at unusually low levels because of the structure of the oil futures market — called “backwardation” — discourages companies from holding inventories because future prices are cheaper than current ones.
For instance, PADD 1B gasoline inventories hit the lowest level on records dating back to 1991 in the week to September 28. They have risen by 3 million barrels since then, but are still 10 percent below the five-year average, according to DOE data.
PADD 1B distillates stocks — which includes heating oil and diesel, and is a particular concern ahead of the winter — are now 45 percent below the five-year average. Stockpiles hit their lowest level since May 2008 in the week to October 12.
Some efforts are underway to aid the flow of fuel, although it is unclear how quick or effective they will be.
* TANK TRUCKS: PBF Energy, an independent refiner, whose two East Coast refineries quickly resumed normal output following Sandy, said it is loading trucks at its 190,000 bpd plant in Delaware City to bring gasoline and diesel to the region. It also said that some northern New Jersey customers were also driving the oil tankers to the refinery’s rack.
* FUEL WAIVERS: The Environmental Protection Agency has waived clean gasoline for three weeks across the eastern seaboard, and waived clean diesel rules for two weeks in New Jersey, in order to help boost supply.
The waivers, in theory, make it easier for refiners to produce more volume of the higher-sulfur fuel, and make it simpler to buy additional supplies from other regions or countries, although it does nothing to ease the logistics snarl.
Reporting by Jonathan Leff; Editing by Marguerita Choy