US eyes fuel relief as Colonial plans restart: Update 2

Adds southeastern fuel detail, company update.

US regulators reviewed regulatory waivers to ease fuel shortages as Colonial Pipeline sought to restart a network supplying nearly half of US Atlantic coast's transportation fuels by the end of the week.

The pipeline operator will know by the end of tomorrow if it will be able to begin restoring service on its more than 2.5mn b/d pipeline system shut last week by a ransomware infection, US energy secretary Jennifer Granholm said today.

US leaders paused some summer gasoline requirements and may waive costlier waterborne shipping mandates to ease pressure on southeastern US gasoline supplies cut by the pipeline shutdown. Easing requirements could help to refill more isolated southeastern fuel stockpiles drained by fears that the outage could persist.

"We know that we have the gasoline, we just have to get it to the right places, and that is why these next couple of days will be challenging," Granholm said. "Things will be back to normal soon."

Operators hope to begin pumping fuel by the end of the week through the 5,500-mile (8,851km) pipeline network moving gasoline, diesel and jet fuel from the US Gulf coast along the Atlantic coast to the New York Harbor market. Colonial has staged 2mn bl of fuel from refineries for distribution upon restart, and had increased inspections and aerial reviews of the pipelines in anticipation of a start up, the company said today. The network had delivered 967,000 bl of fuel available since shutting down on 7 May to markets in Georgia, South Carolina, Maryland and New Jersey. The company did not confirm or comment on the timeline Granholm described.

The pipeline company shut the system on 7 May to prevent ransomware from spreading to its pipeline systems. Operators restarted service at 65 terminals and stub pipelines over the weekend, and yesterday began brief service to pump available fuels through a trunk line from Greensboro, North Carolina, to Woodbine, Maryland. But the key southern pipelines that feed all terminals with fuels produced at the US Gulf coast refining hub remain off line.

Shipper systems needed to schedule and store fuels along the largest pipeline network remain down. The company said in a note to shippers late yesterday it could not take new nominations or post schedules for its network as remediation work continues.

Regional shortages loom

Georgia, North Carolina, South Carolina, Tennessee and Virginia all face supply shortages with limited alternatives so long as Colonial remains offline. Georgia is among the top ten US states for gasoline demand. Georgia governor Brian Kemp and North Carolina governor Roy Cooper urged residents to only buy the fuel they needed. Trade groups in Alabama and Virginia reported stores running out of fuel.

"Panic buying is causing outages at retail stations statewide," Petroleum & Convenience Marketers of Alabama president Bart Fletcher said.

The outage has also disrupted jet fuel supplies, albeit into a market still reduced by global travel restrictions. Airlines adjusted routes and added fuel elsewhere to stretch supplies in the affected areas.

Waiver limits

Regulatory waivers may offer little immediate relief for an outage that operator Colonial Pipeline hopes will be short-lived. The administration was exploring available rail tankers and waiving trucking requirements in addition to the waterborne and fuel quality steps. The US government could waive Jones Act requirements to use US-crewed and flagged vessels to move fuels between US ports, drawing instead from a cheaper and more readily available international fleet. Every available Jones Act vessel was booked by yesterday, with the remaining fleet needing more time to crew and return to service after operators idled vessels because of lower demand.

The US Environmental Protection Agency today waived certain summer gasoline specifications in three states and the District of Columbia to allow greater supply flexibility. The Federal Energy Regulatory Commission (FERC) was also prepared to prioritize shipments into the southeast as Colonial restarted operations. Kinder Morgan's 700,000 b/d Products (SE) Pipeline, formerly known as Plantation, was operating at full capacity moving fuel from Louisiana to Virginia.

Fuel import demand cooled as transatlantic freight costs climbed and on expectations that the pipeline would return to service this week. US refiners booked vessels that may be used as offshore storage for products that would have otherwise gone into the pipeline system. The pipeline outage has added another hurdle for US Gulf coast refiners anxious to capture rising fuel margins and summer fuel demand.

Imports have meanwhile helped to send costs to comply with US renewable fuel blending mandates to new record levels. The Argus-assessed compliance cost exceeded 21¢/USG as exporters seek to cover US requirements ensuring renewable fuels blend into the gasoline and diesel they add to the transportation supply.

By Elliott Blackburn