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NE oil refineries shut as hurricane Sandy moves inland


Post-Tropical Cyclone Sandy is seen as it makes landfall about five miles (8 km) southwest of Atlantic City, N.J.,in this National Oceanic and Atmospheric Administration (NOAA) , Oct 30 2012.

NEW YORK
Petroleumworld.com, Oct. 30,  2012


U.S. refinery and pipeline companies that nearly halted East Coast fuel supplies

ahead of Hurricane Sandy will begin assessing the storm's damage on Tuesday,

hoping that their flood defenses and on-site power allow a quick return to

service.

Three of the area's six key refineries -- including the two largest -- effectively shut down operations in advance of landfall Monday evening for the Atlantic storm. 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.

As Sandy's up to 90 mile per hour winds slow over land and its 13-foot storm surge subsides, operators such as Phillips 66 and PBF Energy will assess any damage to their facilities, and start making plans for restoring operations - a delicate process in the best of times.

If damage is limited, many experts say fuel supplies should resume within a few days, potentially reversing the three-day, 6 percent rally in benchmark New York harbor gasoline futures as traders shift their focus from the threat of a supply squeeze to the loss of demand from airport and road closures.

"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. Two months ago Phillips 66, which reported a power outage at its 238,000-bpd Bayway, New Jersey, refinery on Monday, was forced to clear more than two feet of floodwater from its Alliance, Louisiana, refinery following Hurricane Isaac, delaying its restart.

"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.

Most refineries have some on-site generation equipment that could help restore operations if there are power outages. Phillips 66 did not immediately respond to an email seeking further details on the Bayway outage.

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. RBOB gasoline futures slipped 0.8 percent in overnight trading, the first loss in four days. 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 ground 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.

Philadelphia Energy Solutions began the precautionary closure of key units at its 330,000 barrel-per-day (bpd) Philadelphia refinery, the biggest in the region.

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.

Delta Air Lines' Monroe Energy said it was monitoring the storm, but did not anticipate altering operations at its 185,000-bpd plant in Trainer, Pennsylvania, which has only recently returned to service after major maintenance.

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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Story by
Janet McGurty, Jonathan Leff and David Sheppard; Editing by Michael Urquhart from Reuters.

Reuters.com
| -  Tue Oct 30, 2012 2:53am EDT


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