Sandy & oil, day 3: it’s mostly about the terminals

By John Kingston | October 31, 2012

It’s beginning to be clear that concerns about docks in Sandy were unfounded; concerns about refineries have mostly turned out to be not a problem; but terminals in the New York area are a real mess.

The Department of Energy put out a list of East Coast terminals today, and while there are open ones outside the New York area, there aren’t any open directly in New York or across the water in New Jersey. Terminal after terminal is reporting no power and lots of water. It’s that situation that is clearly making gasoline a near-impossible product to find in parts of New Jersey and New York, particularly Long Island.

The DOE also reported various ports opening–except New York–so product can get into those areas. But with the terminals shut, and the port of New York shut, it is making it close to impossible to get barges into the New York area, as well as getting cargoes in as well.

During the aftermath of Hurricane Katrina, when the Colonial Pipeline become inoperable in parts of the Southeast because of power loss, various midstream marketers met their customer needs by trucking gasoline and diesel a long way to put it into refiners’ tanks and terminals in that region. One thing that helped make that possible was the enormous spread of Gulf Coast gasoline over other regions of the country. For example, after Katrina, Gulf Coast 87 unleaded prices assessed by Platts rose quickly from about $1.86/gal before the storm up to $3.08/gal just two business days later. They then fell before resuming a climb that took them up to about $3.22/gal on September 27.

Chicago spot prices too rose when Katrina first hit, to just a few cents under the Gulf Coast prices. But when they started falling after that, they didn’t stop. It set up on September 27 a tremendous spread, with Gulf Coast gasoline at $3.22 and Chicago gasoline at $2.38. At that price, it makes sense to take gasoline in tanker trucks to the afflicted area. While the relief “mission” took place long before September 27, the spread between the two markets was still wide, and that arbitrage existed.

Move forward to today, and there is nowhere near as much spread. Today, Platts assessed regular unleaded spot in New York at approximately $2.81/gal. We assessed both Chicago and the US Gulf in a range of $2.52-$2.55. The economics for transporting products by tanker truck aren’t there.

If it’s going to happen, it’s going to happen by midstream companies simply determined to supply their stations, regardless of the margins.

JP Morgan tried to put an estimate on at least some of the drop in demand as a result of the storm: jet fuel. In a report, the company said the airports where operations have been affected the last few days account for about 220,000 b/d of jet demand. The analysts throw in another 120,000 b/d for refueling at airports before return flights. “In total, this reasoning suggests to us that lost jet demand was about 360 kbd at the point of peak downtime, or about 6.7% of the 5.4 mbd global jet-fuel market,” the report said. “Although flights are resuming in select cities, the major airports around New York remain closed. Thus, jet demand losses will continue to accrue.”

That figure is far less than the 55,000 b/d in jet production that comes out of East Coast refineries hit by Sandy. “With demand losses exceeding total local production by upwards of a factor of six, the turbulence caused by Sandy in jet markets will continue to wash more through distribution and storage channels, rather than adjustments in refinery operations,” the report said.