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U.S. fuel shortages from Harvey to hamper Labor Day travel

[September 01, 2017] By Devika Krishna Kumar and Jarrett Renshaw

NEW YORK (Reuters) - Travelers and fuel suppliers across the United States braced for higher prices and shortages ahead of the Labor Day holiday weekend as the country's biggest fuel pipelines and refineries curb operations after Hurricane Harvey.

Just six days after Harvey slammed into the heart of the U.S. energy industry in Texas, the effects are being felt not just in Houston, but also in Chicago and New York, and prices at the pump nationwide have hit a high for the year.

(For a graphic on Harvey's impact on oil and gasoline markets, click http://tmsnrt.rs/2iK0YD9)

Supply shortages have developed even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the United States. But much of it is held in places where it cannot be accessed due to massive floods, or too far away from the places it is needed. Some of it is unfinished, meaning it needs to be blended before it can go to gas stations.

Harvey has highlighted another weakness in the system: pipeline terminals typically only have a five-day supply in storage to load into the lines.

Some of the biggest pipelines in the United States, supplying the northeast market and the Chicago area, have already shut down or reduced operations because they have no fuel to pump.

"Gasoline is very much a 'just-in-time' fuel, for as many million barrels as they think we have," said Patrick DeHaan, petroleum analyst at GasBuddy. "Sure, they are somewhere, but they still have to be mixed and blended together."

At least two East Coast refiners, including Philadelphia Energy Solutions and Irving Oil, have already run out of gasoline for immediate delivery as they have rushed to send supplies to the U.S. Southeast, Caribbean, Mexico and South America to offset the lack of exports since Harvey, sources said.

Wholesale gasoline and jet fuel prices have soared as at least 4.4 million barrels per day of refining capacity, or nearly 24 percent of total U.S. capacity, has been closed due to the record rains.

"Since Friday, my cost has gone up 30 cents per gallon," said Ben Little, owner of independent station Ben Little Pure, in the middle of Nashville.

The U.S. Environmental Protection Agency issued fuel waivers in 38 states and Washington, D.C. to ease concerns of supply shortages.

The Energy Department released 500,000 barrels of crude from the Strategic Petroleum Reserve on Thursday. But the market is not short of crude, which makes up the majority of the country's strategic stockpiles.

The United States is short of fuel. The country only has a 1-million barrel gasoline reserve, established in the Northeast after Superstorm Sandy in 2012. That is enough to supply the East Coast for about eight hours.

Gasoline production hit a record in this past week of 9.85 million barrels a day, ahead of the storm, due to the expected spike in driving demand, according to U.S. Energy Department data, a phenomenon seen in the last several years.

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Gasoline Prices are seen at a service station in Michigan, U.S., August 31, 2017. REUTERS/Joe White

TERMINAL SUPPLIES RUN LOW QUICKLY

Colonial Pipeline, the biggest U.S. fuel system, said deliveries to the U.S. Northeast from east of Lake Charles, Louisiana would be hit by supply constraints and as its Houston and Port Arthur origination points have been shut by the storm.

One terminal operator in the New York Harbor region which receives distillate fuel supplies from Colonial said it expects disruptions to its next batch of supplies set to arrive on Sept. 6.

Jet fuel supplies are also threatened. Colonial also services major airports, including Atlanta's Hartsfield Airport, the busiest U.S. terminal, and Washington's Dulles. U.S. airlines had been projected to carry 16.1 million passengers worldwide this weekend, up 5 percent from last year.

Motiva Enterprises LLC's [MOTIV.UL] Port Arthur refinery, the country's largest, with the ability to produce 600,000 barrels of products a day, will be shut for at least two weeks, according to sources familiar with plant operations.

Others may remain shut longer, so motorists nationwide may not have seen the full impact of Harvey yet. The average national price for regular-grade gasoline is up 10 cents in the last week to $2.449 a gallon, but some states have seen increases of as much as 19 cents, according to motorist group AAA.

Prices are likely to top $2.50 a gallon in coming weeks, which would be the highest since August 2015, the AAA said.

Kim Black, 48, waited in line for 45 minutes to fill her white SUV in Garland, a suburb of Dallas, the fifth station she had tried Thursday. A clerk suddenly waived his arms at the line, yelling, "No more gas!"

She was only able to pump less than two gallons, clicking the handle twice to be sure. "$7.00. Well, that's it," she said.

(Additional reporting by Alana Wise and Libby George in New York, Timothy Gardner in Washington, Timothy Ghianni in Nashville, Tennessee and Lisa Maria Garza in Dallas; Editing by David Gaffen, Simon Webb and Lisa Shumaker)

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