Correction: The Colonial Pipeline delivers 2.4 million barrels of fuel per day. A previous version of this story incorrectly stated billion, not million.
Ahead of Hurricane Sandy, refineries along the East Coast shut down and braced for the worst. With the storm gone, about half those refineries have come back on line, according to the U.S. Department of Energy. That will surely help motorists. But even before the storm, the East Coast was facing a chronic lack of gasoline, with stocks lower than they had been in more than 20 years.
As lines form outside gasoline stations, and some of them begin to run out of gasoline, the real problem on the East Coast isn’t the refineries. It’s the terminals—the giant storage depots surrounding New York Harbor where ships and rail cars unload refined products, and where gasoline piped up from the Gulf Coast gets collected. If you’ve ever flown into JFK or LaGuardia, these are the big clusters of white tanks you saw dotting the landscape south of the city.
The East Coast refines a lot of gasoline, but most of what it uses comes from somewhere else. These storage tanks are the crucial gathering point for the East Coast’s gasoline distribution system. Right now, they’re not working.
Most of those terminals took a direct hit from Sandy. Not only do they not have power, they’ve been badly damaged; many took on sea water and mud as they were banged around during the storm. At least two tanks have sprung leaks.
A facility owned by Motiva Enterprises, a joint venture of Royal Dutch Shell (RDSA:LN) and Saudi Refining, leaked about 336,000 gallons of diesel fuel that crews were busy containing on Thursday morning. Another tank at Kinder Morgan’s (KMI) 200-acre storage terminal just west of Staten Island in Carteret, N.J., was damaged when another tank was knocked into it during the storm. “I know that one tank hit another tank and that caused a tear in its side,” Kinder Morgan spokesman Joe Hollier said.
Carteret is the biggest of Kinder Morgan’s four terminals in the U.S. Northeast. The company is sending hundreds of workers to clean up and assess the damage and also bring in large generators to try to restore power. The company announced on Thursday that operations should resume within 48 hours.
One of the biggest terminals around New York Harbor, a 600-acre storage facility 10 miles south of Manhattan in Bayonne, N.J., suffered major damage, according to Dow Jones. The terminal is owned by New Orleans-based IMTT, which has not yet commented on the damage. Reached by phone Thursday, the Bayonne terminal manager said simply, “I’m only talking to the government,” and hung up.
With the terminals unable to accept more product, or load it onto trucks to deliver to area gas stations, the pipelines that connect to them have had to shut down. The Colonial Pipeline is the primary gasoline artery to the Northeast, carrying some 2.4 million barrels a day of gasoline, diesel, and other fuels to the Northeast from the Gulf Coast. With nowhere to deposit that fuel, a huge chunk of the Colonial has been closed. Though Colonial’s operations have slowly begun to resume, the resulting pipeline closure has caused a huge back-up in the system that is rippling all the way down to the Gulf Coast.
“Supplies on the Gulf Coast are starting to back up and look for other outlets,” says Andy Lipow, president of Lipow Oil Associates, a consulting firm in Houston. Lipow estimates that at least half a dozen ships filled with oil or other refined products are floating outside New York Harbor, unable to deliver their cargo. With further refined products building up on the Gulf Coast, and fewer ships there to move them, the rates that ship owners are charging has nearly doubled in the last few days, according to Charles Martin of MJLF & Associates, a Connecticut-based ship broker.
“The ship owners definitely have the upper hand right now,” says Martin. “I’ve never seen anything this extreme.” Most of the product—particularly diesel fuel—that would get piped up to the Northeast is now being sent to Europe, Martin said.
Despite all the disruption however, national gas prices are expected to continue to drop as demand remains low because of all the destruction Sandy caused. “This is a logistics and distribution problem, not a price problem,” Lipow says. “Prices have been falling around the country and will continue to do so.”