Colonial pipeline expects restart this week: Update 2

Adds inventory, Jones Act shipping and line space info, refiner comments and other data.

Colonial Pipeline plans to restore service by the end of the week on the massive system that moves motor fuels from the US Gulf coast to the New York Harbor market.

The operator of the system moving up to 2.5mn b/d of gasoline, diesel and jet fuel through the US southeast and Atlantic coast said that a phased recovery from a ransomware attack that started last week should restore full service across its system this week.

"This plan is based on a number of factors with safety and compliance driving our operational decision, and the goal of substantially restoring operational service by the end of the week," the company said today.

Colonial notified shippers late 7 May that the sprawling products pipeline system shut down key systems to contain a ransomware infection. The company restored some operations yesterday at terminals and smaller branch lines moving throughout the US southeast and Atlantic coast markets. But the major trunk lines remained shut today.

Limited market impacts so far

Colonial estimates it supplies roughly 45pc of the transportation fuel consumed on the US Atlantic coast. An extended outage could curtail crude processing in the largest US refining hub and drain US Atlantic basin supplies to replace domestic fuel output. But fast-moving traders risk paying an unnecessary premium.

Fuel suppliers eyed alternative supply routes but appear to be waiting for more details on the timing for a service restoration. The disruption hit as shippers had extra time to consider loading fuel into the 5,500-mile (8,851km) pipeline network.

US Gulf coast refiners described little change to operations as the week opened. The US government also saw no imminent risk to supply, but it did waive some truck transportation rules to provide more flexibility in fuel deliveries in a number of states.

Other means of transport

Colonial offers the only pipeline connection stretching from the US Gulf coast to the key New York hub. Prices for space on the main gasoline line rose to the highest level in almost 15 months today. Kinder Morgan's 700,000 b/d Products (SE) Pipe Line system — formerly known as Plantation — moves fuels from Louisiana to Virginia but it was fully subscribed. The company said it has deferred non-essential maintenance on the system while Colonial responds to the outage.

Kinder Morgan's Houston Ship Terminal saw an increase in barge and vessel loadings in response to the outage, but the company declined to give specifics.

Shipping fuels between US ports requires the use of costlier, US-flagged and crewed Jones Act tankers. Rates and interest in those vessels picked up this morning. Months of low demand had led operators to store a third of the fleet legally approved to move between US ports. Operators would need time to return the vessels and their crews to service, if demanded.

Major US Gulf coast refiners reported normal operations so far. Marathon Petroleum continued to supply customers and was evaluating alternatives in case they were necessary from its 1.2mn b/d of refining capacity in the area, the company said. ExxonMobil also continued to operate its 1.4mn b/d of refining capacity in the area normally. Phillips 66 declined to comment, and Valero, which operates more than 1.1mn b/d of refining capacity in the region, did not return a request for comment. Chevron said its 440,000 b/d of Texas and Mississippi refining operations were unaffected by the shutdown so far. An extended outage could interfere with its supplies, depending on demand, the oil major said.

Ample gasoline, diesel stocks

The Atlantic coast ended April with slightly below-average gasoline stockpiles and above average ultra-low sulphur diesel stockpiles, according to the Energy Information Administration. New data that will become available 12 May will still predate the pipeline shutdown.

Last year's collapse in transportation fuel demand distorted comparisons to 2020, but the northern half of the Atlantic coast held higher supplies than in 2019.

The Central Atlantic region that includes the New York Harbor market reported higher-than-average gasoline stockpiles during the week ended 30 April, at 36.4mn bl, or 18pc higher than the same week of 2019. Southeastern gasoline stockpiles fell to 23.4mn bl during that week, lower by 6.4pc compared to the same week of 2019.

Distillate was similarly well supplied to the Atlantic coast, with inventories of 42.8mn bl, an increase of 15pc compared to 2019. Stockpiles were higher than 2019 levels in every subregion, including a 10pc increase to 12.3mn bl in the southeast and a 7pc increase to 21.9mn bl in the Central Atlantic.

US fuel imports also climbed in April. Up to 8.1mn bl of gasoline and blending components were booked for transatlantic options on mid-range vessels arriving in the first two weeks of May, according to fixture reports.

The US Energy Department can release up to 1mn bl of gasoline from the Northeast Gasoline Supply Reserve, which consists of 700,000 bl in the New York Harbor area, 200,000 bl near Boston, Massachusetts, and 100,000 bl in South Portland, Maine. The US Environmental Protection Agency may also waive requirements to switch to summertime fuel blends, if necessary. That transition has already begun in some markets.

Refiner relief delayed?

US refiners had begun to lift crude processing rates in April to meet rising summer demand for fuels. An extended Colonial Pipeline outage would mark the latest setback for the sector already recovering from lower pandemic demand, a busy 2020 hurricane season and a costly arctic storm in February.

But the outage could also lift a sharply depressed US Atlantic coast refining segment. Crude processing in the region has lagged all others, even as demand has shown early signs of recovery.

PBF Energy declined to comment on its 285,000 b/d of refining capacity in the region, and Delta Air Lines subsidiary Monroe Energy did not respond to questions about its 185,000 b/d refinery in Trainer, Pennsylvania. Phillips 66 did not comment on reports of a fluid catalytic cracker (FCC) outage at its 250,000 b/d Bayway refinery in Linden, New Jersey, other than to say it had no planned maintenance at the facility.

The US government largely deferred to privately-operated Colonial on the intrusion response. The US Federal Bureau of Investigation (FBI) was investigating the attack and attributed it to criminal organization DarkSide.

A statement attributed to the group today said that Colonial was not specifically targeted and that the attack was not associated with any government.

"Our goal is to make money, and not creating problems for society," the statement said. "From today we introduce moderation and check each company that our partners want to encrypt to avoid social consequences in the future."

By Elliott Blackburn