Pipeline Break Lights a Fire Under Gasoline Prices Across Southeast

Gasoline prices have surged across the Southeast, as the partial closure of a major pipeline has left some gas stations scrambling for fuel and many drivers stuck in lines to fill their tanks.

The Colonial Pipeline—the most important shipping route for delivering gasoline, diesel and other fuel from refineries in the U.S. Gulf Coast to consumers along the Atlantic—closed part of its main gasoline-shipping route Sept. 9 following a leak in Alabama. The artery delivers about 40% of the gasoline consumed on the East Coast.

Colonial Pipeline Co., the Alpharetta, Ga.-based operator, is working on an emergency section of pipeline to bypass the leak. The company has said it expects to restore service later this week.

But those assurances haven't kept prices from jumping. In Georgia, average gasoline prices as of late Monday had risen 7.3 cents from Sunday and 25.2 cents from last week, according to GasBuddy.com, a service that tracks gas prices. Prices have also climbed in Washington, D.C., South Carolina, North Carolina, Alabama, Tennessee and Virginia.

Some areas are experiencing gasoline shortages. In Atlanta, Dean's Midtown sold out of regular gasoline on Sunday; it ran out of premium unleaded the next day. Bart Dean, manager of the gas station, said Monday he still had some diesel fuel but was waiting to hear when more unleaded fuel would arrive.

Shawn McClary, a facilities manager at Georgia Public Broadcasting, said Dean's, a Shell station, was the fifth gas station he used to gas up his fleet of nine vans after four other gas stations had run out. He filled the tanks to make sure the fleet would have fuel for the week.

"We'd rather be safe than sorry," he said.

Gasoline futures surged 7.4% last week even as oil prices fell. Futures gave up some of those gains Monday, settling down 2.8% at $1.4208 a gallon on the New York Mercantile Exchange.

Colonial is still delivering some gasoline and said Monday morning that shipments were en route to cities in the Southeast. To help avoid shortages, the Environmental Protection Agency has waived Clean Air Act requirements that govern fuel specifications in some states and several states have waived rules that limit how many hours truck drivers can travel.

Eric Rosenfeldt, vice president of sales, supply and trading at Virginia Beach, Va.-based fuel distributor Papco Inc., expects fuel-supply problems in the Southeast to last for five or six weeks. Oil companies and traders are using ships, trucks and trains to supply their customers.

"It's pretty crazy out here," he said. Even after Colonial restores service, "you have to replenish everything at the retail level and everything at the wholesale level, and that's a significant amount of barrels."

Some experts warn that outages like Colonial's could become more common as the U.S. contends with aging energy infrastructure and public reluctance to site new facilities and pipelines.

The section of the Colonial Pipeline that leaked was built in 1963, according to the Pipeline and Hazardous Materials Safety Administration. It wasn't yet clear what caused the pipeline to break, the agency said.

"There does seem to be a rash [of pipelines]…that have had failures for a variety of reasons that turned out to be related to age," said Carl Weimer, executive director of the Pipeline Safety Trust. Colonial doesn't stand out among pipelines as especially aged, he said.

Even before this month's leak, scrutiny of oil pipelines has increased. Construction on the Dakota Access crude-oil pipeline in North Dakota was partially halted this month by the Obama administration following protests by Native American and environmental groups. The Keystone XL pipeline was rejected last year by the administration following years of protests.

The East Coast has grown more dependent on fuel deliveries from the Gulf Coast as refineries along the East Coast have closed in recent years. Demand to ship on Colonial has exceeded capacity since 2012, spawning a secondary market in which shippers sometimes pay more than the federally approved rates for access to the shipping route.

"This kind of incident, you could say, is a wake-up call," said Sandy Fielden, director of research for energy and commodities at Morningstar Inc. "You have to build this infrastructure, but nobody wants it."

Earlier this year, Kinder Morgan Inc. shelved efforts to build a fuel pipeline from South Carolina to Jacksonville, Fla., amid local opposition and legislation in Georgia aimed at keeping the company from building the pipeline. The pipeline would have opened in 2017.

"It certainly would have brought a significant amount of refined product into the region," Kinder Morgan spokesman Dave Conover said. "We thought it was a strong project and filled a pretty big need, and clearly our shippers thought the same."

Kinder Morgan owns the region's other major fuel conduit, the 3,100-mile Plantation Pipeline, which moves about 700,000 barrels a day of gasoline, diesel and jet fuel from Louisiana to Washington, D.C. But that pipeline is already fully subscribed.

While Colonial has spilled several times in the past decade, those incidents have been smaller. This month's spill, estimated at 6,000 to 8,000 barrels, dwarfs the 4,585 barrels spilled from the pipeline in the past 10 years, according to PHMSA.

Efforts to repair the Colonial pipeline have been interrupted by gasoline and benzene fumes that at times have made conditions dangerous for workers. The PHMSA said Friday that the company would have to submit a plan and fulfill several requirements before the pipeline could start up again.

North Carolina Attorney General Roy Cooper said on Monday his office had received 400 complaints of price gouging at gas stations. The office took to Twitter and other social media to remind the public that the state had laws against sudden price increases during times of crisis. "Suspect it? Report it," the office tweeted.

Scott Shelton, an energy broker at ICAP PLC in Durham, N.C., is keeping his car full of gas and bought two 20-gallon tanks of gasoline to store in his garage.

"There's not much gasoline storage just laying around this part of the country, and there's not a lot of ways to get gasoline into this area outside of the pipeline," he said. "I'd like to be in the situation where I can get to work."

Mike Esterl and Valerie Bauerlein contributed to this article.

Write to Nicole Friedman at [e-mail] and Alison Sider at [e-mail]

(END) Dow Jones Newswires

September 20, 2016 01:45 ET (05:45 GMT)

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