Harvey's effects on fuel network hit US motorists as gas prices rise

30 August 2017 - 08:26 By Reuters
Pipeline delivery is being throttled back due to the storm.
Pipeline delivery is being throttled back due to the storm.

US drivers are starting to feel the effects of Tropical Storm Harvey in their wallets as the country's fuel distribution network starting at the Gulf Coast and stretching across the country is squeezed by floods, refinery closures and dwindling supplies.

At least 3.6 million barrels per day (bpd) of refining capacity is offline and more refineries are at risk of shut downs as the storm relentlessly dumps rain on Texas and heads toward Louisiana.

The longer refineries remain shut, the more retail prices will increase, traders and analysts said. Two of the major pipelines delivering gasoline, diesel and jet fuel from the Gulf Coast are operating at reduced rates or plan to shut entirely, with wholesale markets in Chicago and the Gulf region seeing sharply higher prices.

"Basically this will affect everyone across the country on some level and your proximity to the supply chain will affect how severe the impact is to you," said Jeff Lenard, NACS vice president of strategic industry initiatives, which represents 80 percent of all gasoline volume sold in the country.

In 2016, about 143.37 billion gallons (or about 3.41 billion barrels) of finished motor gasoline were consumed in the United States, according to the U.S. Department of Energy. That translates to a daily average of about 391.73 million gallons (or about 9.33 million barrels per day).

The national average gas price has increased three cents since Friday, according to the American Automobile Association (AAA), the country's largest motorists’ advocacy group. Analysts said that it could take a few days to weeks for price increases to be fully reflected at the pump.

States likely to see the largest price increases are Texas, Louisiana, Arkansas, and Tennessee, AAA said. Prices are already up by six cents a gallon in Washington, D.C., Georgia and South Carolina since Friday, when the national average was about $2.35 a gallon.

On Tuesday, the national average was $2.378 a gallon, according to AAA.

Across Houston last week, motorists refueled before Hurricane Harvey struck, leaving many gas stations with empty tanks.

After Hurricane Rita in 2005, processions of cars trailed tankers in Houston as they made deliveries to gas stations.

Some fuel terminals in the Houston area were beginning to reopen with limited product, said Jesus Azanza, a spokesman at Texas Food & Fuel Association, a trade group representing more than 12,000 convenience stores and truck stops.

The refueling process is slow, however, leaving some trucks waiting more than four hours to refuel, he said. Depots in some areas were inaccessible due to floods.

"One of our members today attempted to load a truck, spent 5.5 hours waiting only to discover the bulk plant had run out of fuel. Crazy times!" Azanza said.

On a normal day, the average time spent at the truck rack is about an hour.

Even after the storm passes and refineries restart, roads damaged by flood waters and obstructed by trees and debris, could impede delivery for some time.

Pipeline delivery is being throttled back due to the storm. The Explorer Pipeline, which hauls about 660,000 barrels a day of gasoline, diesel, fuel oil and jet fuel from the Gulf Coast to the Midwest, was due to shut its main lines on Wednesday.

Colonial Pipeline, the largest refined products pipeline in the United States, is operating at reduced capacity due to limited supply out of Houston. That line is the key artery to the populous East Coast.

Other pipelines that haul fuel from the Gulf Coast including the 700,000 bpd Kinder Morgan Plantation pipeline and Enterprise Products Partners' TE Products system were functional.

Sources have said that US oil majors were meeting with industry partners to discuss what could be done to direct supplies into some of the hardest-hit areas.

"Our Houston-area terminals currently have inventory and are able to provide fuel supply to the stations in the region once the flooding clears, roads reopen and service stations are assessed," a Chevron spokesman said in an email to Reuters.

Exxon Mobil referred Reuters to trade associations, saying this is an industry-wide issue.

The timing of the storm in Texas is particularly challenging to the fuel distribution system because several parts of the country were already facing disruptions due to high demand from the solar eclipse last week, experts said.

"Last week was a week unlike any other in terms of stress to fuel distribution network ... peak month of gasoline demand (August) plus high demand for the eclipse plus the devastation in Gulf Coast and it's a real challenge on the system," Lenard said.

The US Environmental Protection Agency has expanded its emergency fuel waivers to Louisiana and Georgia allowing more regions to sell higher volatility gasoline through September 15.