Four East Coast refiners shut, cut rates as Sandy nears

Phillips 66 has begun shutting its 238,000-barrels-per day (bpd) Bayway, New Jersey refinery, nicknamed the “gasoline machine” because of its key role supplying motor fuel to the New York City area. The plant, the only one to close during Hurricane Irene last year, should be completely shut by early Monday morning, the company said in a statement.

The region’s biggest refinery, Philadelphia Energy Solutions’ 330,000-bpd facility in Philadelphia, has begun to reduce rates, according to a source familiar with the plant. The refinery had shut an acid unit but it was unclear by how much rates had been cut at the other units.

PBF Energy reduced output at its Delaware plant and Hess Corp curbed runs in New Jersey, sources said, as Sandy affected operations at refineries that account for two-thirds of the East Coast’s 1.2-million-bpd capacity.

While major refineries are built to withstand hurricane-force winds, they are vulnerable to power outages, which can damage units in the case of a “cold shutdown”, as well as flood damage if the storm surge accompanying Sandy – forecast to be as high as 11 feet – breaches their defenses.

Oil traders were already factoring in a potential squeeze on fuel supplies. Benchmark gasoline futures jumped 1 percent and heating oil rose 0.6 percent as New York Mercantile Exchange (NYMEX) trading began on Sunday evening, U.S. time. Crude oil prices dipped by 0.4 percent.

See FACTBOX on energy disruptions due to Sandy for complete refinery details:

Sandy, forecast to come ashore late Monday or early Tuesday as one of the widest storms ever to hit the area, is expected to create strong winds and dangerous flooding to the East Coast from the Mid-Atlantic states to New England.

Hurricane Irene, which hit the region in August 2011, caused severe flooding and power outages along the East Coast as well as some refinery disruptions. Phillips 66 closed the Bayway refinery while other refiners cut rates, but the oil industry escaped Irene with relatively little, if any, damage.

The storm comes as low inventories of refined products, especially distillates and heating oil, have stirred concerns of potential price spikes during the winter heating season.

The Colonial Pipeline, a critical supply link for the East Coast which carries about 15 percent of the country’s gasoline and diesel from Gulf Coast refineries up to the New York Harbor, is preparing for the storm, spokesman Steve Baker said.

The pipeline activated its hurricane preparedness plan on Friday afternoon and has started making sure emergency generators are in place, as well as sandbagging critical areas that may be prone to flooding.

Buckeye Pipeline, which owns and operates about 6,000 miles of oil product pipelines mostly north and west of Philadelphia, has prepared a hurricane contingency plan.

“Buckeye will continue to operate their pipelines as scheduled until the time that it is no longer safe to do so, or power or product availability make it no longer possible to run a particular line section,” the company said in a statement.

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