States, fuel distributors grapple with falling demand

US pipeline and terminal operators are navigating demand shocks just as fuel changes to new seasonal specifications.

Trade groups and shippers are working with state governments to allow the continued distribution of winter-grade gasoline as slowing demand raises concerns that the fuel may be stranded in storage tanks.

Fuel distributors face a nationwide requirement to transition to summer-grade gasoline at terminals in May and to the retail level in June. But many markets also have transitional state-level requirements for grades of gasoline that begin 1 April.

Waivers of these requirements are more commonly associated with supply disruptions, such as a major storm or pipeline outage. But community efforts to mitigate the coronavirus pandemic have created a surprise shock to demand. Travel and business curtailments have reduced the gasoline demand that would normally empty winter gasoline from pipelines and storage tanks.

Magellan Midstream Partners today reported a 10pc decrease in gasoline demand over the past week across its 15-state midcontinent and US Gulf coast pipeline system. That drop was roughly in line with a decrease of 8.9pc in gasoline demand nationwide in the week ended 20 March, according to the Energy Information Administration. Magellan planned for a 25pc drop in gasoline demand in its conservative second quarter outlook.

US independent refiner and wholesale fuel marketer Phillips 66 reported a 20pc drop in gasoline demand nationwide, and as high as 30pc in parts of the west coast. Colonial Pipeline, a key supplier of US Gulf coast fuels to the New York Harbor market, warned two weeks ago of reducing capacity on its key gasoline and diesel pipelines by 20pc to balance flagging demand. The company said this week it was adjusting to shipper requests. Kinder Morgan, which operates the Plantation Pipeline moving refined products from the US Gulf coast through the southeast and the SFPP system in the west coast, said it was reducing rates in line with shipper demand, but gave no volume estimates.

That has left trade groups and distributors to lobby state governments for more time to empty winter grade gasoline from the system. Each state controls how fuel specifications shift from winter gasoline, which contains blendstocks that operate in colder temperatures but evaporate easily in the summer, to summer gasoline.

"That makes everything all the more challenging, in terms of getting states to understand their regulations, understand how the challenge that we are facing right now could potentially impact fuel supply," API senior fuels policy adviser Patrick Kelly said.

Most states supported the change when made aware of the problem, Kelly said. But trade groups had yet to secure waivers from all 50 states a week before the 1 April transition.

By Elliott Blackburn