The biggest U.S. East Coast refinery in Philadelphia appears to have emerged undamaged from Hurricane Sandy and a smaller nearby plant operated without trouble, sources said on Tuesday as energy firms began assessing the storm's damage.
Initial reports from the two facilities suggested that the region's fuel supplies may bounce back quickly after being almost completely halted ahead of Sandy, which came ashore on Monday evening with winds of up to 90 miles per hour (mph) (144 kilometers) and a record 13 foot (4.3 meters) storm surge, causing widespread power outages.
But the situation still may be a tricky for a few days. Phillips 66 reported a power outage at its 238,000-bpd Bayway, New Jersey, plant late on Monday, after it had been shut down as a precaution. Experts say that could slow the recovery at the plant, which was also seen as the most vulnerable to flooding.
"Bayway is probably the most exposed as it sits right out by the water and it's certainly in the path of the storm," said Matthew Partridge, downstream analyst at Wood Mackenzie in Houston. He said plants should be up "within a few days" if they escape damage, although it was too early to give an assessment.
Operations in the Philadelphia area appeared set to resume quickly. Philadelphia Energy Solutions will probably try to restart some units at its 330,000 bpd refinery Tuesday as it appears to have escaped damage, according to a source familiar with refinery operations.
And Delta Air Lines subsidiary Monroe Energy's 185,000 bpd Trainer, Pennsylvania, plant continued operating through the storm, and is expected to reach full rates next week after a major maintenance overhaul, a source said.
Three of the area's six key refineries shut down operations in advance of Sandy's landfall, while two more reduced operating rates, curtailing at least two-thirds of the region's capacity.
Major ports that supply the area with some 1 million barrels per day (bpd) of imported fuel were also shut, while the northern leg of the Colonial Pipeline from the Gulf Coast was idled. It supplies as much as 15 percent of the East Coast's 5.2 million bpd of gasoline, diesel and fuel demand.
If fuel supplies resume quickly, benchmark New York harbor gasoline futures may reverse their 6 percent run-up ahead of the storm as traders shift their focus from the threat to supply to the loss of demand from airport and road closures. Prices were little changed in early trading on Tuesday.
"Markets have already bumped up prices to some degree. If there's no major catastrophes then prices are going to go in the other direction," said John Auers, senior vice president and refining specialist at Turner, Mason & Co. in Dallas.
He said that the East Coast plants, even those near the water, are better protected from potential flood damage than those that suffered weeks-long outages on the Gulf Coast following Hurricanes Katrina and Rita seven years ago.
But even well-prepared plants can face problems. Following Hurricane Isaac in August, Phillips 66 was forced to clear more than two feet of floodwater from its Alliance, Louisiana, refinery, delaying its restart.
Most refineries have some on-site generation equipment that could help restore operations if there are power outages.
The largest risk may simply lie in restarting vast, intense equipment after a brief shutdown.
"You're talking about heating up oil to fairly high temperatures, putting it through processing units at high pressure," said Auers. "Anytime you interrupt that steady-state there is always the potential for issues."
SUPPLIES STRETCHED, BUT DEMAND WEAK
Oil traders were already beginning to reconsider the run-up in fuel prices ahead of the storm. One trader offering to sell physical cargoes in the New York harbor market found no buyers on Monday.
That's despite the fact that fuel stockpiles -- heating oil in particular -- are unusually low for this time of year.
While awaiting news on fuel supplies, oil traders began totting up the impact on demand.
Airlines had canceled more than 13,700 flights for Sunday, Monday and Tuesday, including more than 7,600 for Monday alone, flight-tracking service FlightAware said. Road travel came to a halt, with major bridges and tunnels shut down. Marine traffic at some of the nation's busiest ports was halted.
"The flip side is demand is going to be a lot lower this week, as not many people are going to be out there driving," said Partridge. "If this number of refineries went offline during the summer driving season gasoline prices would go through the roof."
The precautionary refinery closures are more widespread than during Hurricane Irene in August 2011, when only the Bayway plant shut completely.
Hess Corp said it shut its 70,000-bpd refinery in Port Reading, New Jersey, while PBF Energy opted to reduce rates at its 180,000-bpd Paulsboro plant in southern New Jersey, and its Delaware City facility.
Even if the refineries escape unscathed, however, any damage to the vast network of oil terminals, pipelines and truck racks could complicate supply logistics.
NuStar Energy and Magellan Midstream Partners , two of the biggest players in the nation's pipeline and storage terminal business, also shut terminals along the East Coast.
"As a result, the distribution infrastructure, including pipelines and refined product terminals are extremely important and could hamper recovery efforts if significant amounts of this infrastructure is damaged," said Roger Ihne, principal in the oil and gas practice at consultancy Deloitte.
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