Consumers in some states can expect gas prices to rise due to an ongoing shutdown of the Colonial Pipeline. Reuters photo by Kate Munsch.
Leak shuts down Colonial Pipeline main gasoline, distillate lines last week
By Devika Krishna Kumar
NEW YORK, Sept 16 (Reuters) – Gasoline futures have soared and prices at the pump in certain states have started to spike as a result of an ongoing shutdown of the Colonial Pipeline, the key artery bringing gasoline and other products to the U.S. East Coast.
Colonial, the largest U.S. refined products pipeline system, shut its main gasoline and distillate lines last week after a leak was discovered in Shelby County, Alabama.
The company has since restarted operations at some parts of its gasoline pipeline at reduced rates, and is also pumping fuel on its distillate line, which has been completely restarted.
However, a complete restart of Line 1, the gasoline line, has been pushed to next week because of gasoline vapors at the site, the company said. As of Thursday, the cause of the leak had not been found, causing traders to question whether Colonial would manage a full restart by next week.
The outage is expected to hit the East Coast and southeast markets the most, as they rely heavily on pipeline supply to meet demand requirements. Gasoline futures were higher on Friday, even though most other parts of the energy complex were lower, and prices are up about 8 percent since the leak was found a week ago.
Specifically, traders and analysts say the six states that are most likely to be affected are Georgia, Virginia, South Carolina, North Carolina, Alabama and Tennessee.
Retail prices in Georgia and Tennessee were also higher, with regular gasoline rising to $2.136 a gallon on Friday from $2.108 the day before, according to the AAA. Tennessee prices rose more than one cent. Georgia declared a state of emergency on Thursday to allow easier transportation via road.
“You’re looking at a lot of terminals that are running pretty tight on gasoline supply and … it’s becoming an issue where motorists are starting to feel it with their wallets,” said Patrick DeHaan, a petroleum analyst at Gasbuddy.
“The immediate concern is availability in these areas, but even after the pipeline is fully restored, you still have racks and terminals that are trying to beef up their inventory to pre-outage levels and that’s going to be a struggle.”
Line 1, which runs from Houston to Greensboro, North Carolina, has a capacity of 1.2 million barrels per day.
The Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) typically issues a “corrective action order” listing requirements that need to met before approval for a full restart is given.
The order has not yet been issued.
Gasoline futures rose as much as 2.6 percent to a session high of $1.47 a gallon.
U.S. refined product calendar spreads, particularly the front-month October contract’s premium to November contracts, rallied on Friday.
The supply outage has led to increased buying in the front of the gasoline and diesel forward curve, with traders betting supply will be tight in the near term ahead of seasonal refinery maintenance.
U.S. gasoline’s front-month calendar spread jumped to a fresh record on Friday while the U.S. ultra low sulfur diesel (ULSD) front-month calendar spread rose to its highest in more than a year.
Distillate deliveries are expected to be delayed since gasoline batches are being shipped on Line 1, Colonial said, boosting ULSD spreads.
The gasoline crack spread, a measure of gasoline margins, jumped as much as 13.3 percent on Friday to its highest since June 6.
However, U.S. Gulf Coast gasoline prices have weakened significantly since last week. Gasoline for prompt delivery on the coast fell to its lowest in nearly 3 months on Friday.
(Reporting by Devika Krishna Kumar in New York, additional reporting by Jessica Resnick-Ault; Editing by Meredith Mazzilli and Alan Crosby)