Why consumers pay the price for fuel shortages

Just days after Hurricane Harvey smacked Texas and hobbled a quarter of US refining industry, the supply networks that fuel the nation’s cars, trucks and airplanes began to fail.
On paper, there was no fuel shortage.
The United States had more than 200 million barrels of gasoline in giant steel tanks scattered across the nation — enough to last more than three weeks.
But the fuel was unavailable to prevent shortages for two reasons: most of it is not owned or managed by the government, sitting instead in commercial facilities, and it is stored far away from where it was needed.
Consumers paid the price as gasoline spiked ahead of Harvey’s arrival and jumped again after the storm as the extent of the disruption to Texas refiners became apparent.
Prices surged even higher when Hurricane Irma hit Florida, which relies on Gulf Coast supply.
That left Florida residents scrambling for fuel in one of the largest evacuations in history.
Thousands of stations closed, driving high prices and long lines those remaining open.
The supply chain breakdown caused delays and expense at the worst possible time for families fleeing the storm.
The shortages were felt nationally — with an average gas price spike of 10 per cent — and internationally, as countries dependent on US exports had to find replacement supplies.
When Harvey shut pipelines and ports that transport millions of barrels of fuel nationwide from the Gulf, it left major cities with only a few days’ supply of fuel.
Pipelines started closing five days after Harvey hit, with nothing to pump through key fuel conduits from Texas to New York, Philadelphia and Chicago.
“It proves to you how vulnerable the country is to the pipelines,” said Dennis Curtis who runs Curtis Oil, a fuel distributor in the Carolinas. “When they go down, it’s a ripple effect all the way to New Jersey.”
The storm’s disruption to domestic and global fuel supplies led the International Energy Agency, the watchdog for energy security in industrialised nations, to call for a review of the way the US government plans for emergencies.
A boom in US fuel production has also made refineries here big suppliers to Latin America and Europe.
“The rise of the Gulf Coast as a major energy hub means that… normal operations are too important to fail,” the IEA said in a report earlier this month.
Most of the 216 million barrels of gasoline in storage in the United States is owned by refiners, traders and fuel distributors.
The stockpiles sit where holding them makes commercial sense to the firms that own them — and not where it might best help consumers during emergencies.
Oil firms try to limit storage to hold down costs, and the fuel that is stored often sits at refineries because the firms already own the land and the necessary permits.
That meant Harvey flooded many storage facilities when it hit Texas refineries, cutting them off from the pipeline network.
Another oil stockpile — US government-owned crude, held in the Strategic Petroleum Reserve — is less useful for emergency supply shortages because crude needs refining.
When the SPR was established in 1975, the government’s biggest concern was potential disruption of imports of Middle East crude, not post-storm fuel shortages.
After Harvey, some refineries requested crude from the SPR, which currently hold 675 million barrels.
The Department of Energy (DOE) granted exchanges of more than 5 million barrels to keep refineries that were not flooded up and running, Energy Secretary Rick Perry said.
The disruption that Hurricane Sandy caused New York and the Northeast in 2012 led to the establishment of the country’s only government-owned fuel reserve.
But it holds only 1 million barrels — about enough for one US rush hour morning — and is located in Massachusetts, New York and Maine.— Reuters

Devika Krishna Kumar & Libby George