With Harvey downgraded to a tropical depression and moving inland, attention has turned to the aftermath of flooding and the ability of the Houston area to recover from the natural disaster. A set of small explosions at a chemical plant in a town northeast of Houston – caused by inoperable cooling systems due to power loss during the flood – served as a reminder of the issues that are present even as the rainfall subsides. In the case of energy markets, the focus will turn to the ability to reopen oil refineries that have taken over 20% of the nation’s refining capacity offline, and restoring operations at marine terminals for the movement of crude oil and refined products.
Diesel Price Differentials from August 22, 2017
With outages at Houston area refineries lingering from earlier this week, population centers in Texas are beginning to see the impact. Dallas, TX has become an area of focus, as wholesale price surges have emerged in the past few days, outpacing the rest of Texas’s movements by nearly 7¢/gallon. San Antonio is also subject to price volatility, though premiums fall under 2¢/gallon compared to the state average. In the cases of these demand centers, the issue forms around possible fuel shortages as Houston supply sources remain offline. Without easy access to larger fuel storage facilities – something that is helping to insulate supply and pricing volatility in other regions of the country – these populations centers will continue to be at risk. The market has already taken actions to try to alleviate the lack of supply, as one refined product pipeline between Dallas and Oklahoma reversed its flow earlier this week to help move more products from storage into the Dallas market. Further, concerns for fuel supplies may be more prevalent for gasoline in these markets as we enter Labor Day weekend, but diesel shortages (and the price premiums they can bring) will be of growing concern.
Newswires lit up on Thursday morning, as the Colonial Pipeline system announced their plans to shut down part of their operations on their gasoline, diesel, and jet fuel lines due to the refinery outages in the Houston area. The Colonial is the largest pipeline in the US, moving refined products from Houston through Southeastern US and up the coast to New York Harbor. It is the primary means of supplying the states along its route and could stand to extend regional price volatility in the southeast if an extended outage develops. While there have been alarmist initial reactions to this development regarding fuel shortages, it is important to understand the full details of the announcement. The Colonial Pipeline had been slowing their flow rates in the past few days, as full utilization requires regular input from all refineries on the route (starting in Houston). This morning’s announcement was specific to shutting down operations west of Lake Charles LA, which – as shown on the map above – is a small portion of the pipeline. The Colonial will continue to operate at reduced rates east of Lake Charles, with the intention to evaluate reopening the western section over the weekend. The timeline to restore oil refineries in the Houston area and structural analysis of the Colonial Pipeline’s assets will ultimately determine the path forward for the transportation line. The Colonial is no stranger to such headlines, as it went through two significant outages in Fall of 2016. In both instances, the outages occurred on the dedicated gasoline line and all products were moved into the smaller secondary line for diesel and other refined products. In both cases, impacts to state-level diesel prices ranged from 1-4¢/gallon, though today’s announcement has moved benchmark New York Harbor spot prices up roughly 8¢/gal.
For a more recent update, watch a recording of a special feature Advisor webcast held Friday, September 1:
The Breakthrough®Advisor team will continue to follow the impacts of Harvey and what it means to your supply chain. For more information on this event, or on the fuel market in general, please contact Daniel Cullen, Vice President of Advisory Services, at Daniel.Cullen@breakthroughfuel.com.