Motorists far beyond Houston will feel the wrath of Hurricane Harvey, without seeing a single raindrop.
Fuel prices at the pump are expected to follow surging wholesale prices higher after Colonial Pipeline Co. had to curb flows on its system. Refinery shutdowns have limited the amount of fuels being sent into the line, a major conduit of gasoline and diesel to the Northeast. Two major Gulf Coast refiners, Valero Energy Corp. and Royal Dutch Shell Plc, told wholesale customers Wednesday they don’t have enough gasoline and diesel to sell.
Lines at some gasoline stations in the Dallas area were long and selection was limited. At a Sam’s Club in Dallas about 60 cars waited in line for gas on Thursday. The station is out of premium gasoline and two of its 12 pumps are completely dry. A man at the front of the line said he waited for about an hour to fill up his 7 series BMW, while asking the attendant if putting regular gasoline in the car would mess up his engine.
“It’s one thing to not have refiners,” Dan McTeague, an analyst at GasBuddy.com, a company which tracks retail prices and availability, said by phone. “It’s quite another thing to not have pipelines.”
Hurricane Harvey cut U.S. fuel-making capacity by almost a quarter, to the lowest level since 2008, after its initial strike on the Texas coast late last week. The storm hit Louisiana on Wednesday, bringing torrential rains that shut the biggest U.S. refinery, owned by Motiva Enterprises LLC in Port Arthur, Texas, and more than a dozen other fuelmaking facilities.
As refineries along the Gulf Coast turned off the lights, Colonial, which carries fuel from Gulf Coast refineries to the East Coast, said portions of its two main Lines 1 and 2 west of Lake Charles, Louisiana, would be offline and operating at reduced rates to the east. Many smaller lines branching off from its main artery are also likely to shut. The pipeline expects shipments to resume Sunday from the Houston area.
Pace of Supply
“The issue is the pace of supply that we’re getting from the origins,” Buster Brown, Colonial’s director of scheduling, said in a telephone interview. “It’s not as much running out of supply as the timing — the speed at which supply gets to market.”
Once shipments from the Houston area resume, Colonial will be able to ship fuels east, bypassing shuttered terminals in the Port Arthur area, Brown said. “Houston supply and Port Arthur supply are independent, so to speak.”
Harvey also submerged pump stations and terminals along the Gulf Coast with its days-long deluge, and operators such as Valero and Shell had no choice but to stop sending fuels.
Valero stopped supplying gasoline stations across the Northeast at stores that don’t carry its logo, while Shell reduced supplies to some company-branded stations in the lower Atlantic, according to people familiar with the operations of both companies who asked not to be identified. Motiva Enterprises holds exclusive rights to distribute Shell fuels to the majority of the southeast, said Natalie Gunnell, a spokeswoman for Shell’s U.S. products unit.
Valero didn’t return requests for comment.
The U.S. Environmental Protection Agency, in an effort to stay ahead of potential shortages, has been issuing waivers temporarily exempting more states from clean-air quality standards requirements for fuel.
Gasoline futures for September delivery at New York Harbor rose for an eighth session Thursday, the longest rally since 2013, and climbed above $2 a gallon. Prices for the contract, which expired Thursday, surged 28 percent on the New York Mercantile Exchange in the past four days. The more-active October contract is up 15 percent so far this week. The premium of September to October fuel more than tripled since Aug. 25.
The ongoing gasoline supply issues could reduce East Coast inventories to 3- to 5-year lows, Zachary Rogers, a refining and oil products analyst at Wood Mackenzie Ltd., said by phone from Houston.
Meanwhile, European refiners are rushing to fill the gap. At least 20 tankers were booked to load European fuels for the U.S. since Harvey made landfall, a rate nearly double the average for August, shipping data compiled by Bloomberg show. Shipbrokers said cargo flows to New York are expected to be the highest since November, when an explosion on Colonial Pipeline cut off supplies.
“Because of the shortage, you will likely see a price increase in the East Coast, which would incentivize the other refiners to shift gasoline yields,” Rogers said.
— With assistance by Bert Gilbert, and Micha Rondeau