Colonial Sees Line 1 Restart Saturday After Fatal Explosionby
Gasoline futures surge as traders rush to fill supply gap
Restart schedule may change as access to site is limited
The owner of the biggest U.S. fuel pipeline said it may resume service on its gasoline line at noon local time Saturday after an explosion and fire in Alabama sent futures surging and traders scrambling to supply East Coast states with fuel.
Colonial Pipeline Co., which carries gasoline and other refined products from Houston to Linden, New Jersey, was forced Monday to shut its two main pipelines after a crew working near the site of a prior spill hit the line with construction equipment. The company, owned by a group that includes Koch Capital Investments Co. and a unit of Royal Dutch Shell Plc, said its projected restart time for Line 1 may change as it gets more access to the site of the blast, which killed one person and sent five others to Birmingham-area hospitals for treatment. The pipeline fire was contained but still burning Tuesday afternoon.
It’s the second major disruption on the pipeline in two months. A spill in September shut the line for 12 days, cutting supplies to 50 million Americans in the U.S. Southeast.
The southeastern U.S. is “highly dependent on pipeline supplies from Colonial and, ultimately, Colonial flows form the baseline of U.S. East Coast supply,” Robert Campbell, head of oil products research at Energy Aspects Ltd. in New York, said in a note. The longer the mainlines are offline, “the more upward pressure will be placed on U.S. East Coast fuel prices, while downward pressure will be exerted on U.S. Gulf Coast product prices.”
Even if the pipeline restarts on Saturday, major Southeastern cities like Nashville, Tennessee; Atlanta; and Charlotte, North Carolina, will be short supplied, according to Andy Milton, senior vice president of supply and distribution at Mansfield Oil Co., a Gainesville, Georgia-based fuel supplier.
“It’s not going to be Armageddon, where people would have to walk to work,” Milton said by phone. “We’re doing everything we can to supplement the pipeline being down right now. But logistically, there are only so many trucks and drivers. You’re kind of plugging holes.”
Gasoline traders responded immediately to the possible shortages, rushing to book extra tankers for replacement fuel supplies from Europe, according to two shipbrokers directly involved in the trade. Freight costs for cargoes across the Atlantic surged 78 percent to $16,308 a day, the highest returns possible on that route since January, Baltic Exchange data show.
Retail prices for regular unleaded gasoline in states including Alabama, Georgia, South Carolina and Virginia remain below the current national average of $2.206 a gallon, according to data from U.S. motorist organization AAA.
December gasoline futures rose as much as 21.56 cents, or 15 percent, to $1.6351 a gallon, the biggest intraday gain for an active contract since 2008. The contract, which is for supplies delivered into New York Harbor, settled at $1.4841 on the New York Mercantile Exchange.
The Colonial explosion and fire comes as the U.S. oil industry faces a backlash from environmentalists opposed to building new pipelines, including the controversial $3.8 billion Dakota Access oil pipeline. Last year, the Obama administration rejected the Keystone XL project. In early October, climate change activists disrupted oil flows by turning off valves in several remote pumping stations along Enbridge Inc.’s main pipeline, which runs from Canada to the U.S. Midwest.
Mansfield Oil started trucking fuels late Monday to states most affected by Colonial outages -- Tennessee, Alabama, Georgia, the Carolinas and Virginia, Milton said. Several unbranded gasoline suppliers had already halted shipments to retail stations by Tuesday morning, he said, estimating that Colonial’s two mainlines supply about 70 percent of the gasoline in affected states.
Colonial had to shut its 1.3 million-barrel-a-day gasoline line after an 7,370-barrel leak was discovered Sept. 9. It built a temporary bypass that allowed it to resume shipments on Sept. 22 and had planned to remove it between late October and mid November. The mainline that transports diesel and jet fuel reopened at midnight New York time.
Colonial -- and to a lesser extent the smaller Plantation Pipe Line Co. -- play a key role in supplying the U.S. Southeast because there aren’t any refineries between Alabama and Pennsylvania that produce substantial quantities of transportation fuels. The region is supplied primarily by pipelines from refineries along the U.S. Gulf Coast, according to the U.S. Energy Information Administration.
While Colonial has a capacity of 2.6 million barrels a day of refined products, the Plantation pipeline carries just 700,000 barrels a day.