Release date: September 21, 2016  |  Next release date: September 28, 2016

Pipeline shutdown disrupts gasoline supply in the Southeast

A partial shutdown of the Colonial Pipeline system, a major source transportation fuels supply to the Southeast, has disrupted gasoline supplies, leading to higher prices and product shortages in parts of the region.

On September 9, Colonial Pipeline shut down its “Line 1” pipeline in response to a leak near the town of Pelham in Shelby County, Alabama. Repair and restoration activities are currently underway, including the construction of a 500-foot, above-ground bypass around the affected section of pipeline. The bypass is expected to allow the pipeline to resume operations and flow rates on “Line 1” as early as today.

Colonial Pipeline is a significant source of transportation fuels supply for several southeastern states (particularly Georgia, South Carolina, North Carolina, and Virginia) and Tennessee. The U.S. Southeast accounts for approximately 12% of total U.S. motor gasoline consumption and 34% of Petroleum Administration for Defense District (PADD) 1 consumption. Because there are no refineries between Alabama and Pennsylvania that produce substantial quantities of transportation fuels, the U.S. Southeast is supplied primarily via pipeline flows from refineries along the Gulf Coast supplemented by marine shipments from the Gulf Coast and imports.

Colonial Pipeline is a 2.5 million barrel per day (b/d) system of approximately 5,500 miles of pipeline. The pipeline connects 29 refineries and 267 distribution terminals, carrying refined petroleum products such as gasoline, diesel, heating oil, and jet fuel from as far west as Houston, Texas to as far north as New York Harbor. Various branches of Colonial Pipeline supply markets in central and eastern Tennessee, southern Georgia, and eastern and western portions of Virginia. “Line 1” carries approximately 1.4 million b/d of gasoline from the Gulf Coast to a major junction and storage hub in Greensboro, North Carolina. From Greensboro, two pipelines carry a mix of fuels further north to Maryland and Linden, New Jersey, near New York Harbor. Colonial Pipeline consistently runs at full capacity, as pipeline movements are the lowest cost delivery mechanism into the area.

As Colonial Pipeline works to restore service on “Line 1,” gasoline shipments were temporarily dispatched on its “Line 2” pipeline, which normally carries only diesel fuel, heating oil, and jet fuel, in order to deliver incremental supplies to Greensboro, North Carolina. However, the gasoline supplies were less than the volumes that would normally be transported on “Line 1,” and they displaced distillate supplies that would normally be shipped on “Line 2.” Gasoline, diesel, and other fuels also continue to be delivered via Plantation Pipeline, the other major refined products pipeline transporting supplies from the Gulf Coast to as far north as Virginia. However, it is much smaller in capacity, approximately 700,000 b/d, and, like the Colonial system, normally runs at full capacity.

Affected markets will seek alternative supply arrangements, which will vary by market and location. Inland markets in the Southeast that depend heavily on Colonial Pipeline do not have easy access to alternative supply sources other than long-distance trucking from distant supply points. Markets along the East Coast with access to deep-water ports, such as Savanah, Georgia; Charleston, South Carolina; Wilmington, North Carolina; and Norfolk, Virginia, can receive limited imports from the global market and marine shipments via coastwise compliant shipping originating in the U.S. Gulf Coast.

In an effort to make additional supplies available, federal and state governments have issued regulatory waivers and notices. The U.S. Environmental Protection Agency issued waivers that allow conventional gasoline to be sold in metropolitan areas that normally require reformulated gasoline, as well as waivers for Reid vapor pressure specifications. Additionally, as of September 16, six states have issued waivers on hours-of-service restrictions for truck drivers delivering gasoline, allowing for longer-distance transportation.

Until gasoline supplies again arrive via Colonial Pipeline, affected distribution terminals will rely on their current stocks and supplies obtained from alternative sources. Because shipments of gasoline in pipelines move slowly, at approximately five miles per hour, some markets may still be experiencing supply shortfalls several days after service is restored on Colonial Pipeline, however, alternative supply arrangements would continue during that time.

Any limitation in the availability of gasoline at local distribution terminals will be reflected in their posted “rack” prices, which, combined with the higher costs of alternative supply options, will ultimately influence the retail price of gasoline. On September 19, the average retail price of regular gasoline increased eight cents from the previous week to $2.17 per gallon in PADD 1C, a region that includes several states along the southern Atlantic coast.

For the week ending September 16, total U.S. motor gasoline inventories fell by just over 3 million barrels; this masks significant regional variations, however. Because the Colonial Pipeline is a major outlet for Gulf Coast refinery gasoline production, the current disruption caused supplies to back up or be stranded along the Gulf Coast to the extent that coastwise maritime shipments or export markets are unable to absorb the extra volumes. Therefore, while gasoline stocks at affected distribution terminals in the Southeast were drawn down during the disruption, gasoline stocks in the Gulf Coast region rose.

As expected, the Southeast showed the largest decline, with gasoline inventories down roughly 6 million barrels for the week from a base of roughly 28 million barrels. The Mid-Atlantic region (PADD 1B), which includes the New York Harbor area, showed a decline of just over 2 million barrels (about 6%). Conversely, the Gulf Coast region showed an increase in gasoline inventories of nearly 5 million barrels.

The decreases in Southeast gasoline inventories were at both terminals and pipelines. Of the roughly 150 terminals sampled on a weekly basis in the Southeast, 120 showed declines in gasoline inventories for the week ending September 16. There were no significant changes in refinery operations on either the East Coast or Gulf Coast, and there was no sizable change to import volumes to the East Coast.

U.S. average regular gasoline retail prices increase, diesel fuel prices decrease

The U.S. average regular gasoline retail price increased two cents from the previous week to $2.23 per gallon on September 19, down 10 cents from the same time last year. The East Coast price rose five cents to $2.19 per gallon. The West Coast and the Midwest prices each increased two cents to $2.65 per gallon and $2.15 per gallon, respectively. The Rocky Mountains and Gulf Coast prices each fell one cent to $2.27 per gallon and $1.97 per gallon, respectively.

The U.S. average diesel fuel price fell one cent from a week ago to $2.39 per gallon, down 10 cents from the same time last year. The price in each region fell one cent, dropping to $2.65 per gallon in the West Coast, $2.48 per gallon in the Rocky Mountains, $2.39 per gallon in the East Coast, $2.37 per gallon in the Midwest, and $2.24 per gallon in the Gulf Coast.

Propane inventories gain

U.S. propane stocks increased by 0.7 million barrels last week to 101.7 million barrels as of September 16, 2016, 4.7 million barrels (4.8%) higher than a year ago. Gulf Coast and Rocky Mountain/West Coast inventories increased by 0.8 and 0.2 million barrels, respectively, while East Coast and Midwest inventories each decreased by 0.2 million barrels. Propylene non-fuel-use inventories represented 2.4% of total propane inventories.

Upcoming changes to Weekly Petroleum Status Report

As previously announced in This Week in Petroleum on September 14, EIA will no longer include crude oil lease stocks in commercial inventory data starting with Weekly Petroleum Status Report (WPSR) to be published on October 13. To help readers prepare for this change, we have created a test site that removes lease stock data from our previously published weekly commercial crude oil inventories. EIA will also conduct one test of the WPSR through the test site under the same conditions as the regular weekly WPSR release that normally takes place at 10:30 a.m. on Wednesdays. Please see the notice of upcoming changes and the test schedule for more information.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

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Retail prices (dollars per gallon)

	Retail prices	Change from last
	09/19/16	Week	Year
Gasoline	2.225	0.023	-0.102
Diesel	2.389	-0.010	-0.104

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Futures prices (dollars per gallon*)

	Futures prices	Change from last
	09/16/16	Week	Year
Crude oil	43.03	-2.85	-1.65
Gasoline	1.462	0.101	0.106
Heating oil	1.405	-0.025	-0.086
*Note: Crude oil price in dollars per barrel.

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Stocks (million barrels)

	Stocks	Change from last
	09/16/16	Week	Year
Crude oil	504.6	-6.2	50.6
Gasoline	225.2	-3.2	6.4
Distillate	165.0	2.2	13.1
Propane	101.749	0.659	4.673