One Big U.S. Pipeline Spill Is Causing Gasoline to Pile Up

  • Colonial Pipeline’s Line 1 halted after Alabama spill
  • As Houston supplies mount discount to New York Harbor widens

The shutdown of the largest U.S. gasoline pipeline is causing already high fuel supplies to get stopped up in Houston.

Shipments from a segment of Colonial Pipeline’s Line 1 that transports 1.3 million barrels a day of fuel from the U.S. Gulf Coast to Greensboro, North Carolina, were halted last Friday after a 1,000-barrel spill in Alabama. The company expects to complete the restart of the line over the weekend, according to a notice to shippers. Some gasoline volumes will be pumped on Line 2, a segment of the system that typically hauls diesel.

The supply interruption comes at a time when East Coast gasoline inventories are hovering 10 million barrels above the five-year average, according to government data. Shipments to New York Harbor will now back up on the Gulf Coast, easing the glut, according to Mark Broadbent, senior North American refining research analyst at Wood Mackenzie. The excess in Houston will likely get liquidated via waterborne export to Latin America, he said.

"It’s more attractive to refiners, if they’re going to ship it on the water, to send it to a Latin American country," Broadbent said.

Surging Premium

As supplies get stopped up in Houston, the price of conventional unfinished gasoline has plunged in the Gulf Coast relative to New York, opening the arbitrage to the Northeast. Prices in New York Harbor now carry a premium of 9.75 cent a gallon relative to Houston, the highest level in four months.

The spill coincided with the annual seasonal transition to winter-grade gasoline that has a higher RVP, or Reid vapor pressure. Higher-RVP fuel evaporates more easily when temperatures plunge in winter months and engines are harder to heat up. Colonial said gasoline shipments with three different RVP-levels will be commingled to ease the startup of certain pipeline segments.

"The commingled product will not arrive at deliveries prior to September 16th and will not create any compliance issues," Colonial said in its notice.

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