The Fuse

Colonial Pipeline Outage And Panicked Fuel Buying Leads to Shortages

by Nick Cunningham | May 12, 2021

The cyberattack on the Colonial Pipeline resulted in a multi-day shutdown of the largest supplier of gasoline to the U.S. East Coast.

The outage itself did not cause immediate shortages, with storage able to cover a short-term gap in flows. If the pipeline comes back online soon, the disruption will be minimal and temporary. But the panicked hoarding of retail gasoline has resulted in shortages across much of the Southeast.

Cyberattack

The May 7 cyberattack resulted in the shutdown of the Colonial Pipeline, which accounts for 45 percent of the gasoline supplied to the East Coast. The pipeline carriers 2.5 million barrels of refined products per day. “The cyber-attack on arguably the most important piece of onshore oil transport infrastructure in the US is still not resolved,” Louise Dickson, oil market analyst at Rystad Energy, said in a statement on May 12.

The outage sparked immediate concern, and the White House announced emergency waivers for weight limits on trucks transporting fuel, and it waived Jones Act requirements that bar foreign-flagged ships from moving products from one U.S. port to another. The EPA waived seasonal requirements on fuel blends to prevent smog.

But as of now, there is no immediate shortage of gasoline, there is only a bottleneck preventing its movement. “The oil and gasoline is there,” said Amy Myers Jaffe of Tufts University, according to the New York Times. “We can pump it manually, we can carry it by truck, and the government and other entities can hire ships. And we have oil in inventories.”

Fearful motorists began buying up gasoline en masse.

Nevertheless, fearful motorists began buying up gasoline en masse, a phenomenon that may end up being a defining feature of this particular episode. There are reports that social media fueled the panic.

The rush to hoard gasoline itself has caused shortages, rather than an immediate lack of supply. As of May 12, roughly three in four retail gasoline stations in Spartanburg, South Carolina and Charlotte, North Carolina had run low or were out of fuel. According to Bloomberg, at least three distribution hubs in Pennsylvania have reported storages and long lines. An apparent shortage of truck drivers is also adding to bottlenecks.

Average gasoline prices across the country edged up above $3 per gallon for the first time since 2014.

To be sure, the blockage is causing some disruption. Several oil refineries on the Gulf Coast have had to trim processing as they could not load their products onto the Colonial Pipeline. Motiva Enterprises slashed refinery runs by 45 percent, and Total cut gasoline production by 25 percent. Both facilities are located in Port Arthur, Texas.

Roughly 13 percent of the 4.7 million barrels per day of refining capacity on the Gulf Coast has been idled.

According to Bloomberg and Energy Aspects, roughly 13 percent of the 4.7 million barrels per day of refining capacity on the Gulf Coast has been idled. Refiners are also booking vessels offshore for storage.

Temporary disruption

The longer the outage persists, the more serious the implications. Rerouting energy flows are possible, but more costly. “Shipping oil by vessel from the Gulf Coast to the Southeast and Northeast is not only expensive and takes longer, but there also isn’t a large flotilla of tankers ready on such short notice,” Louise Dickson of Rystad said. “There could be a similar constraint on the transport of oil products by road.”

On May 10, Colonial Pipeline said that it expected a phased restart by the end of the week. Energy traders factored in that expectation, according to Argus Media, as prices for gasoline in various markets reflected an expectation that the outage would be short-lived – i.e. imported gasoline from Europe would not be needed. But if the restart of the pipeline is delayed further, it will require a larger movement of fuel by ships, from both the Gulf Coast and from abroad.

On May 12, Colonial Pipeline provided an update, stating that it began to restart operations. “Following this restart it will take several days for the product delivery supply chain to return to normal,” Colonial said in a statement. “Some markets served by Colonial Pipeline may experience, or continue to experience, intermittent service interruptions during the start-up period. Colonial will move as much gasoline, diesel, and jet fuel as is safely possible and will continue to do so until markets return to normal,” the company added.

Even when the pipeline returns to full operations, it may take up to two weeks for gasoline to move up the entire length of the pipeline from the Gulf Coast to fuel stations on the East Coast.

In the end, the outage looks likely to be a temporary disruption, despite the panic. But the fallout will certainly lead to deeper scrutiny over cyber security.

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