Colonial Pipeline cyberattack may benefit European refiners

The 2.5 million barrels per day (b/d) Colonial Pipeline moves roughly 45% of the US East Coast's supply of gasoline, diesel, and jet fuel from the Gulf Coast. The duration of the outage is uncertain.

In the short term, Wood Mackenzie expects fuel demand and prices to rise in PADD 1, prompting refined fuel inventories to decline and PADD 1 refiners to maximize production.

At present, the Jones Act prevents the use of internationally registered ships to be used to move surplus gasoline from the US Gulf Coast to the Atlantic Coast markets. As a result, US Gulf Coast refiners are in a more challenging position, as they need to increase exports to international markets or reduce runs once product stocks have been built.

New York Harbor (NYH) refined product inventories, a portion of PADD 1B, were already low at the end of April. As of 30 April, NYH gasoline storage utilization was at 53%, leaving inventories about 6.5 million barrels above the operational floor. NYH heating oil/diesel storage utilization was at 38%, leaving inventories about 3.6 million barrels above the operational floor.

“Obviously, that's not a huge buffer to supplant supply if Colonial stays down for long,” Dylan White, senior research analyst, said.

Looking simply at the New York area, without additional waterborne supplies, these inventories could be materially depleted within a week or two.

Low inventories in New York Harbor will likely spur price increases, which in turn triggers resupply from the Europe and other longer haul sources of supply.

Alan Gelder, vice president, refining and chemicals, said: “Europe could be a ready supplier of additional gasoline volumes, up to a further 500,000 b/d, as its refinery utilization is currently low due to weak regional demand from the Covid-19 pandemic.

“However, this would depend on Colonial being out of service for some weeks and for the relevant provisions in the Jones Act to remain in place. Such higher exports would be associated with a significant increase in the gasoline crack spread – perhaps US$5/bbl over current levels to compensate for already weak distillate pricing.”

The consumers that could be hardest hit by a prolonged outage are those in inland locations. During the last material Colonial outage consumers in northern Georgia, Tennessee, inland Carolinas and inland Virginia were hit the hardest, while ports such as Savannah, Georgia, saw a major increase in gasoline cargo arrivals that were trucked inland, resulting in retail gasoline price spikes.