Colonial says pipeline restart underway: Update

Adds details of restart.

Colonial Pipeline is restarting its pipeline network supplying nearly half of Atlantic coast transportation fuels, raising prospects of an end to a panic-fueled supply crunch in the US southeast.

A phased restart of the pipeline network started at 5pm ET today but the operator of the 2.5mn b/d gasoline, diesel and jet fuel system will be working without its shipping nomination, scheduling and inventory systems, complicating the work.

"Some markets served by Colonial Pipeline may experience, or continue to experience, intermittent service interruptions during the start-up period," the company said. "Colonial will move as much gasoline, diesel and jet fuel as is safely possible and will continue to do so until markets return to normal."

Moving forward with a phased restart of the network that runs from the US Gulf coast to New York Harbor will ease panic-driven supply shortages. The timeline should further chill import interest and may lower the risk of extensive cuts to US Gulf coast refiners banking on the high-demand summer driving season that begins at the end of this month.

Operators shut the network on 7 May to prevent a ransomware infection from spreading to critical pipeline systems. The company resumed some supply lines and terminals over the weekend, and has staged roughly 2mn bl of fuel for a restart.

No nomination changes accepted

Colonial will rely on the shipping schedules that were in place at the time of the shutdown until it can restore its business operations. The company will not accept nomination changes "as we will not have access to the systems necessary", Colonial said in a notice to shippers. Automated systems communicating with terminals would also remain offline, relying instead on phone calls.

Colonial will allow reformulated gasoline to be delivered into its southern tank farms, and comingle reformulated grades from the south with conventional grades.

Federal regulators have eased fuel and transportation requirements to stretch supplies throughout the southeast, where distributors have fewer supply options.

Priced to restart sooner

Colonial's progress toward a restart this week discouraged imports to fill supply gaps on the US Atlantic coast. European benchmark Eurobob oxy gasoline that opened the week at a $4/t premium sank to a discount yesterday on the assumption that the supply would not be needed in the US. Northwest European gasoline premiums to front-month Brent fell by $1/bl following the plan announcement, and were at a $9.74/bl premium today, narrowing as Brent prices rose.

Those prices have fallen on confidence that the US already has sufficient supply. Gasoline stockpiles in the southeastern region most dependent on the system rose immediately before the shutdown, to within expected seasonal ranges for the region. Diesel stockpiles fell but remained at roughly expected volumes for the season.

Stockpiles were rising in the US Gulf coast, which relies on Colonial as an offtake for the majority of the fuel moving into the east coast. But adequate supply means little without the ability to deliver those volumes.

Retailers reported panic buying quickly draining the fuel available in the states most dependent on the Colonial system.

"I am talking to retailers right now who have sold several days worth of inventory within a few hours," Energy Marketers of America president Rob Underwood said. "It does not benefit anyone in the long run."

Oil groups have sought broader waivers of requirements to use US-flagged and crewed vessels to move fuel between US ports. Waiving Jones Act requirements was the remaining area where President Joe Biden's administration "can make a big difference," American Fuel and Petrochemical Manufacturers chief industry analyst Susan Grissom said. No groups or US agency have identified any applications for such waivers so far.

A prolonged outage on the pipeline network will force run cuts at the more than 7mn b/d of US Gulf coast refining capacity able to send fuel into the system. Some refiners have already adjusted rates. Conditions helped cut heavy sour crude prices in the US Gulf coast to their lowest levels since April 2020 as the region's complex refiners weigh reducing operations. But fading interest in offshore floating fuel storage suggests more confidence that pipeline operations will resume.

By Elliott Blackburn