US pipeline shutdown sparks worries of $3 gas
A cyberattack forced the largest US fuel pipeline to shut down Friday, and analysts are worried the disruption could result in a spike in gas prices.
The Colonial Pipeline system spans more than 5,500 miles and transports about 45% of all fuel consumed on the East Coast. It transports 2.5 million barrels per day of gasoline, diesel, jet fuel and home heating oil.
Colonial Pipeline Company said it was the victim of a cybersecurity attack that involved ransomware. In an update on Sunday, the company said that its four mainlines remain offline, but some smaller lines between terminals and delivery points are now operational. The pipeline’s owners include Royal Dutch Shell.
“We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations,” it added in a statement.
The shutdown could extend a recent jump in gasoline prices — especially if the outage persists — piling on the pain for drivers as the seasonal peak in demand approaches.
“The number of days that the line is out of service is critical,” Tom Kloza, global head of energy analysis for the Oil Price Information Service, which tracks gas prices at 140,000 US stations, told CNN Business.
“The greatest concern is in coastal states from Georgia north to the Delmarva Peninsula,” Kloza said, referring to the peninsula that includes parts of Delaware, Maryland, and Virginia. Supply to the northeast can readily be supplemented with foreign imports of gasoline, he said, but several other states don’t have that advantage. “Tennessee is also a primary supply concern, as it often runs out of gasoline during normal circumstances,” he said.
The US Department of Transportation on Sunday said it has issued an emergency “hours of service” exemption in response to the shutdown that will allow truck drivers transporting gasoline, diesel and jet fuel to work longer days.
Limited supply could mean higher fuel prices for motorists during the spring driving season. US gasoline futures for May delivery gained 1.5% on Monday, rising to $2.16 a gallon. Prices had spiked as much as 4% in early trading.
The national average pump price of regular gas stands at $2.97 a gallon, according to AAA, up more than 60% from a year ago when prices and demand were bottoming out. The national average could surpass $3 a gallon this summer, and go even higher if hurricanes hit the Gulf Coast or if there are additional supply outages.
Analysts at GasBuddy, which tracks over 150,000 gas stations in North America, said that it will take days for normal conditions to return even after the pipeline is back online.
“It’s very difficult to pin the exact amount prices may rise, but for now, it appears to be a few cents per gallon, possibly growing more significant if the pipeline remains shut down for more than 2-3 more days,” wrote the analysts.
Andy Lipow, Houston-based oil consultant and President of Lipow Oil Associates, emphasized that the timeline is crucial. “Two days can be made up in orderly fashion,” he said of the current shutdown. Five days, however, could be a much more significant blow to logistics.
The pandemic had already put the industry under pressure. The United States faces a shortage of tanker truck drivers, after many left the business a year ago when gasoline demand ground to a near halt during coronavirus shutdowns.
The attack could also trigger challenges for jet fuel deliveries, Kloza said. Many major East Coast airports maintain only three to five days worth of inventory, so a two to five day suspension of a pipeline that in some cases moves fuel directly to major airports — such as Atlanta’s Hartsfield Jackson Airport — can have a dramatic impact.
