Gulf Coast working to fill a fuel void in Northeast


Northeastern states are slated to lose half of their regional capacity for fuel production by midyear as financial woes push refineries there to idle, a trend likely to increase the region’s dependency on Gulf Coast supply.

A Houston-to-New York pipeline is making major expansions to accommodate growing demand to transport gasoline and other fuels up north from the Gulf Coast to fill the potential supply void.

The Gulf already supplies about half of the Northeast’s demand for petroleum products, said Mindi Farber-Deanda, head of the liquid fuels market team for the U.S. Energy Information Administration.

But the shutdown of production at two major Pennsylvania refineries last year and potential closure of a third could put the region in a precarious position and stress supplies of gasoline, jet fuel and heating oil, the agency concluded in a new report.

“It’s marginal, but it matters,” Farber-Deanda said of the drop in the Northeast’s local fuel production. “Before, you could get a certain percentage of supply from local refineries. Now you get it from Europe and the Gulf.”

The report noted that Northeastern states could experience “spot shortages with price hikes” for gasoline and other fuels as refineries discontinue operations.

Sunoco announced last month that it will idle operation of its 335,000 barrel-per-day refinery in Marcus Hook, Pa., part of the company’s plan to pull out of the refining business altogether. If Sunoco doesn’t find a buyer for its 178,000-barrel-per-day Philadelphia refinery by July, it will go off line, too, the company has said.

ConocoPhillips announced a similar move in September, taking its 185,000-barrel-per-day Trainer, Pa., refinery off line to prepare it for sale.

Pressure points

A combination of the sagging economy and improved fuel efficiency in vehicles and equipment has caused demand for some fuels to plateau. Meanwhile, competition from larger and more efficient refineries on the Gulf Coast and imports from Europe put pressure on local fuel producers, said Bill Day, a spokesman for San Antonio-based refiner Valero.

“They found it very difficult to compete,” he said. “If there was demand for product there, those refineries wouldn’t close down.”

Valero pulled out of the Northeast in 2010, when it sold its Delaware City, Del., and Paulsboro, N.J., refineries.

The struggling European economy has left refiners on the continent with plenty of gasoline to ship overseas.

Cleaner heating oil

A bigger concern for the Northeast is heating oil.

Demand for ultra-low-sulfur heating oil is expected to rise next fall, when regulations taking effect in New York will require use of the cleaner fuel in boilers that warm buildings. A limited number of refineries are equipped to produce it.

“Heating oil concerns are probably the greatest,” said Terry Higgins, executive director of refining for consulting company Hart Energy. “A cold snap, with a strong surge on heating oil needs, could be a strain on the system.”

Room to grow

The Gulf Coast is replete with refineries that are expanding or have room to increase production, he said. Motiva Enterprises, a joint venture of Shell and Saudi Aramco, is nearing the end of a massive expansion of its Port Arthur refinery to increase production of ultra-low sulfur fuel and other petroleum products.

In 2010, Gulf Coast area refiners produced a net 3.4 million barrels per day of ultralow-sulfur distillate fuel oil, a category that includes the clean heating oil, according to Energy Information Administration data. That’s up from just 23,000 barrels per day in 2005.

Colonial Pipeline, a major thoroughfare for shipping fuels from Gulf Coast refineries to East Coast markets, has seen growing demand from refiners to ship larger amounts of its products north, spokesman Steve Baker said.

The 5,500-mile pipeline transports heating oil, as well as gasoline, diesel fuel and other petroleum products.

Last year, Colonial added 120,000 barrels per day of carrying capacity to its system. By mid-2012, it will have expanded the flow of distillates – including heating oil, jet fuel and diesel – by another 55,000 barrels per day. In December, the company announced it would expand its gasoline transport capacity by another 100,000 barrels per day.

In total, the expansions will increase the system’s capacity by about 8 percent, Baker said.

“We have seen a rising demand throughout the year” for fuel transport between the Gulf Coast and the Northeast, Baker said. “These are big capital investments. It’s a significant increase.”;

Simone Sebastian

24 Responses

  1. ntangle says:

    With all of the comments about the EPA and Obama and quasi-secessionist suggestions, we seem to have forgotten why these refineries are really being shut down. Simple economics. They’re too reliant on expensive sweet crudes like Brent and Bonnie Light. And have less access and less processing capability for sour heavies like Maya, Orinoco, and Athabasca. With their Gulf Coast rivals’ better access to the latter, they can’t compete as effectively.

  2. ntangle says:

    Since reps Markey & Waxman don’t like this shutdown, then maybe it’s a positive thing.

  3. Diogenes says:

    Why don’t we just keep our oil down here and sell it for fifty cents a gallon. The greenies in the northeast are against oil and want a ‘green’ solution to our energy woes (i.e., no oil, coal, nuclear) so let them figure something out while it is -20 degrees there this winter.

  4. Paul says:

    I hope y’all go to the polls in November and vote Obama out of office before it is too late for our country.

  5. aeroguy48 says:

    How about no taxes at all then we can starve the parasitic government and become free again.

  6. David Gower says:

    Ray, we need to nuance that a bit. Let’s call it an Environmental Export Fee. Then all the oil coming from Cousin Hugo needs to be taxed with an Environmental Import Fee. Just keep stacking on Environmental This Fee and Environmental That Fees on all imports by ship and sooner or later the price of WTI and Brent will equalize. Maybe we could even put a little money into education around here.

    People in the northeast really need to consider all that new gas and geothermal up there for heating. (Of course gas can’t be delivered very well without a pipeline. We could call the pipelines “heating fuel rapid transit systems”. The reporters at the NY Times wouldn’t know the difference.) All of those shale gas wells could be converted to closed loop geothermal systems after the gas plays out.

    We could build a Keystone heating fuel rapid transit system from Houston up through Cushing and on up North a ways. Probably to within 1 foot of the Canadian border. We could wait until hurricane season to vote on that last foot when the prices in the NE favor the project. We could help out a little bit by shutting in the Gulf every time a wave comes off of Africa out of an extreme concern for the potential Environmental Disaster to our pristine Texas Gulf Coast. Florida has their Environmental concerns and so should we.

  7. Ration Al says:

    Basically, followers of the GOP will use/create anything to blame Obama.

  8. pdh42 says:

    Pesonally the liberals are getting ready to eat the ugliness that they have imposed upon this nation… Nobama needs to allow the pipeline between Houston and Canada to be built…. The EPA has imposed such draconian rules upon these refineries that it is not profitable to run many of them unlike what many of the uneducated think…. In 2012 we need to remember this and throw ALL of the bums out of office and put people in who will listen and do the right things….

  9. Ray says:

    How about an export tax, on all refined product leaving Texas? We can use the revenue to pay for health care for Texans. That will get those Yankees at the NY Times squealing.

  10. Byron Allen says:

    Not a word from Obama about blocking this pipeline because it will bring product to his voters. This points out the absolute stupidity and hypocrisy of the obama administration and those that oppose the Keystone pipeline.

  11. mark says:

    It’s a ploy. Buy lot’s of gas futures and then shutter your refineries lay off all your employee’s and make a killing off your speculation. Makes perfect sense. Who cares if the nation suffers. The Gulf coast has been hit hard by natural disasters and not having the refining capacity on the East coast will further Obama’s plans of not drilling off the East coast. What’s the point of drilling if you can’t get your oil to market.

  12. Mike H. says:

    All the eggs in one basket refinery wise, so a major hurricane will wreck havoc on a wider area.

  13. bagmore says:

    Let the damn yankees freeze in the dark!

  14. Simone Sebastian says:

    Adler and n8: Adding a parallel pipeline is one way of expanding capacity. But in this case, Colonial is primarily adding capacity by upgrading pumps and motors in its system to increase the flow rate of fuel through the pipeline.

    – Simone Sebastian, energy reporter

  15. Mark from Louisiana says:

    When talking about sending energy to the northeast, especially Washington DC, I think of the old bumper sticker from the 80’s.

    Let the Bastards
    Freeze in the Dark

  16. n8 says:

    Gulf Guy…an expansion…sorry to tell you…involves building and installing new pipeline. By the way, there is over 625,000 MILES of pipeline installed in our country. Enough to circle the globe 30 times. Yes, this is a political punt from the President to assuage his environmentalist base at the expense of his union buddies…and the rest of the country. But the unions will be made whole with the recent NLRB appointments that will allow for rules implementation to take place via the full quorum….another Constitutional issue but I digress.

    Yes, the liberal, environmental philosophy of “progress” at the expense of civilization hurts real people. The people in the northeast, dependent on energy refined in Houston (so much so their pipeline need be expanded), would be better served if more oil was supplied to Houston to be refined. Oh and by the way, this energy would come from a strong ally in our neighbor to the north…not from the Middle East, Brazil or even Venezuela.

    I understand you want a simple, happy world where everyone can get along and politics doesn’t have to be brought up. But that is not our world and there are forces intent on destroying what American have built over the past few centuries. The sooner you and others wake up to the lies sold to you on a daily basis, the sooner we can get back on track.

  17. ChemE says:

    Hahaha…this is going to be epic funny the first time that a Gulf Coast Refinery has product quality issues and has to slow down or halt exports.

    If those Yankees were squeeling for gasoline after Ike made refineries from Houston to Baton Rouge idle for 5 days to ride out the storm, imagine what is to come.

  18. Adler says:

    Good luck getting the required permits to buy and operate these older refineries or build replacements. Liberal NIMBY is rampant up there.

    Oh and GG, did you read the paragraph that explains that Colonial is increasing their capacity? You increase pipeline capacity by either increasing the diameter of the pipe or adding another parallel pipe. The translation is that it’s OK to build a pipeline from Houston to NY to supply them, but not a pipeline from Canada to Houston to supply the raw material.

  19. Trail_Tramp says:

    That’s OK. They don’t need gasoline in the Northeast. They’re all driving Chevy Volts, like Obama wanted them to.

  20. ntangle says:

    WD – They prepare for contingencies (i.e. spare pipe & equipment on hand) and can make repairs and get back into service promptly. As long as politics doesn’t get in their way. But they might be at a reduced rate for awhile.

  21. Johan says:

    Sounds like the big oil companies are setting us up for another round of price increases due to the lack of refining capacity and then blaming it on the EPA saying they won’t let them build more refineries.

  22. Gulf guy says:

    WTH are you talking about? Liberal has nothing to do with this. I don’t knowwhy some of you insist on bringing political affiliation into this. NY-Houston pipeline is already existence. It’s just a matter of expanding it. That is a far easier sell than building a new one.

  23. Woodlands Dad says:

    This is not good. A pipeline explosion or any other shutdown cause and these folks are in a big pickle.

  24. n8 says:

    So the difference between the Colonial and Keystone pipelines is that one goes from Houston to New York and the other goes to Houston from Canada. Yet one gets held up for political reasons by the President and the other is expanding. Anyone else see a problem with the logic in that? Seems like the politically-dominant northeast would prefer their supply of energy increased, not threatened. But such is the crux of the fallacy that is the liberal philosophy.