Ike"s sudden left turn just before it made landfall meant that the 13 refineries in Houston escaped the brunt of the hurricane"s force. All are reporting they sustained no material damage and will begin the restart process as soon as power is restored. That could be a week to ten days before power is stable and another 2-3 days to restart. This suggests there could be a serious problem for refined products like gasoline and diesel. ...

Drivers across the southwest were already facing long lines and prices higher by as much as 25 cents a gallon in some states. Federal officials are preparing for a prolonged disruption in fuel supplies. According to EIA data gasoline inventories the week Gustav hit were at the lowest level since 2000 at 187.9 million barrels or 21 days of supply. Much of that inventory is required just to keep the pipeline full and cannot be used. Pipelines only run when they are full. There are thousands of pumps along the way that require product in order to run. If allowed to run dry the pipeline would cease to function and require a lengthy restart period. Basically product only flows out when new product is pushed in thousands of miles away.

Gasoline traveling by pipeline from Texas to New Jersey takes an average of 18.5 days to make the trip. The shortages from Gustav took 11 days to appear. Since before Gustav hit there has been a drop in refinery output of around 3 million barrels per day. If it takes another two weeks to get the refineries back online that is another 42 million barrels of refined product shortages.

Pipelines Closed

One of the biggest refined products pipelines is the 5519-mile Colonial with a capacity of 2.4 mbpd. It is currently shutdown because of lack of product. The colonial stretches from Texas to New York and feeds all the states along the way. If the Colonial is not restarted soon the entire eastern seaboard will begin experiencing fuel shortages. The 700,000 bpd Explorer pipeline from Texas to Indiana is completely shutdown from lack of product. The 600,000 bpd Plantation pipeline from Louisiana to Virginia is operating at greatly reduced rates. All of these pipelines could be offline for another two weeks suggesting a serious shortage of fuel will develop on the east coast.

Fuel shortages will involve gasoline, diesel and jet fuel. Expect rationing.

Prices for fuel are likely to rise substantially along the east coast as drivers compete for the available fuel. This is the equivalent of rationing by price. Only those desperate enough to pay the price will be able to buy gas. Consumers may have to cut back on unnecessary trips until supplies return. It is possible Airlines may have to cancel flights from the east coast until jet fuel is again in available. This suggests they will cancel flights to the east coast rather than have their planes grounded there for lack of fuel.

If fuel shortages do develop it could cause a feedback loop in the economy. A two-three week period where travel is seriously curtailed means fewer trips to the mall, going out to eat, taking weekend trips, visiting relatives, etc. Restaurants could see a significant drop in revenue. This could be a preview of what peak oil will look like.

Where is our gasoline and diesel supply headed? Even before Ike hit, quite a few areas of the US were starting to see gasoline shortages. The impact of Ike can only make shortages worse. Most likely, it will take refineries at least a week or two to get production back to normal levels after a storm of this type, considering the impacts of electrical outages and flooding. In this article, I will examine some of the issues that seem to be involved. Based on my analysis, fuel supply shortages are likely to last well into October, and are likely to get considerably worse before they get better.

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