Supply Chain

Sandy Clogs the Fuel Line

A storm-caused gas shortage in the Northeast reveals a weak supply chain.
Caroline McDonaldDecember 15, 2012

Gas shortages in the wake of Hurricane Sandy have revealed weaknesses in the Northeast gas supply chain that will require fixes from the private sector and federal and state government, according to a petroleum analyst.

Fuel problems that already existed, such as obsolete laws and a shortage of refineries on the East Coast, were exacerbated by Sandy, says Gregg Laskoski, a senior petroleum analyst for GasBuddy, which tracks gasoline trends and prices across the United States and Canada. For example, before the hurricane, refineries on the East Coast were operating at only 81% of their production capacity, according to a 2012 report from the Energy Information Administration. By November 2, four days after Sandy made landfall, that percentage fell to 58.5%.

Yet, even though the East Coast uses a good portion of the gasoline produced in the United States, it is “not really a hub of refining activity,” Laskoski points out, noting that most of the nation’s oil refineries are on the Gulf Coast. “The problem we see in the Northeast emphasizes the importance of having more refining capacity in other parts of the country besides the Gulf Coast,” which is extremely vulnerable to hurricanes, he says.

Shortages became more acute after New Jersey’s Phillips 66 refinery, the second-largest in the Northeast, lost power during the storm. The refinery produces 238,000 barrels a day, and it is difficult to replace that kind of volume, Laskoski says. Adding to the trouble, a pipeline bringing fuel to the region from the Gulf Coast also lost power.

Damaged terminals and storage tanks were a part of the problem, too, because fuel distributors rely on them for supplies. Making matters worse, even gas stations that did have gas weren’t able to pump it, because of power failures.

To alleviate the shortage, the federal government temporarily waived the Jones Act, a law that prohibits foreign-flagged vessels from engaging in interstate commerce, and granted a waiver enabling foreign nations to send oil tankers to the East Coast. Both waivers remained in effect until November 13. That process needs to be made more efficient, Laskoski says. “There should be something that automatically goes into place, without having to wait for a federal bureaucrat to sign a piece of paper to say, ‘Let’s get the fuel where it’s needed,’ regardless of what kind of ship it’s on,” he says.

Legislators in New York have also introduced bills requiring retail gas stations near evacuation routes to have generators in case of a power failure, as Florida does. While there may be resistance to such a plan, “the bottom line is, as of [mid-November], only about a quarter of the gas stations in the five boroughs of New York have gas,” Laskoski says.