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Harvey Hampers US Refining Capacity, Fuel Shortages Expected

By Patrick Higgins  |  31/08/2017 14:25
Tropical Storm Harvey's continued destructive presence in the US Gulf Region has rendered a critical network of East Coast pipelines offline, prompting fears of fuel shortages all along the Atlantic Seaboard region and causing US petrol prices to skyrocket.
Colonial Pipeline said in a statement yesterday that all deliveries of aviation fuel and diesel gas would be suspended immediately, and that gasoline supplies would be shut down from today; due to power outages at critical pumping stations and lack of consistent supply from the Texas refineries.  In total, out of the company's 26 relay facilities that process refined oil products in Texas, 13 are in the Houston-Lake Charles area, the worst-hit by flooding from Harvey.  The statement gave no guess as to when the pipelines would reopen.  The pipes usually handle three millions barrels of gas and other oil products daily and deliver from the Gulf refineries to major Northeast cities such as New York, Washington DC, and Atlanta. 
In the wake of the pipeline shutdowns, two East Coast refineries have already run out of immediate supplies of petrol for international delivery, and are rushing to find alternative suppliers to fill barges meant for markets usually supplied by Gulf producers.
The ferocity of Hurricane Harvey during its first landfall in Texas last week had prompted the shutdown of many major Gulf refineries, which make up around 50% of all US refining capacity.  The initial worries of supply constraints were exacerbated by the devastating impact Harvey has had on the region, especially the flooding in Houston and Lake Charles.  According to the US Department of Energy, up to 25% of US refining capacity, or 15 refineries, remains closed.  That is about 4.4 million barrels of oil daily. 
In addition to Colonial Pipeline, Explorer Pipeline, which supplies up to 350,000 bpd to the Midwest, has also been shut down for similar reasons.  Like much of the East Coast, Chicago and other major Midwest consumer bases are scrambling to find alternative suppliers as well.
Wholesalers in the US have been severely hit by the crutched Gulf retailers.  The premium for Chicago-area gas above WTI benchmark is at the highest level since June of last year, and Gulf Coast price is at its highest above WTI futures since August 2012.  Additionally, Harvey's impact on the Gulf Coast refining hubs has severely shaken global energy markets, with international traders trying to fill the gaps left by crippled US production by securing other suppliers to help avert fuel cuts in America
To avoid potential fuel shortfalls, efforts have been made to dispatch delivery tankers from Europe and Asia to the US.  However, given the uncertainty of the logistics that go into tanker acquisition and timely delivery, fuel shortages are likely to occur across the eastern and midwestern US in the short-term.  Nationally average petrol prices have increased by more than 10.1 cents per gallon since last week and by more than 4.5 cents from yesterday to $2.449, according to data released by the American Automobile Association.  In particular, some of the areas most affected by Colonial Pipeline's shutdown have seen higher and more drastic rises than the national average.  Georgia and North Carolina have seen increases of 17 cents, while in South Carolina rises of 20 cents per gallon have been observed since last week as well.
Tropical Storm Harvey continues to move across the region and made landfall in Louisiana earlier today.  New Orleans, which was devastated by Hurricane Katrina in 2005, is expecting more than 10 inches of rain and flash-flooding.  This amount is significantly less than the amount dumped on Houston, which in some suburbs was up to 48 inches (122 cm), or the yearly average in one day.  Tens of thousands have been evacuated in the Houston-area, with more than 20 people confirmed dead.


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