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Data shows East Coast gas shortages were inevitable

November 16, 2012: 10:21 AM ET

According to new government data, the gasoline crisis that's been plaguing the New York region since Sandy was a disaster in the making.

By Leah McGrath Goodman

nyc-gas-linesFORTUNE -- Hurricane Sandy may have been the perfect storm, but gasoline shortages on the East Coast were apparently a disaster waiting to happen, according to data from the U.S. Department of Energy's statistics branch, the Energy Information Administration.

To put it simply, the East Coast was – and is – sorely underprepared for any supply disruptions. A deep dive into the data released late this week show gasoline inventories on the East Coast hit a low not seen in the month of November for at least 10 years.

November is a popular month for hurricanes in the Northeast, so the seasonal comparison is noteworthy. The reason why Sandy's sting was so much greater than in past storms? Gasoline inventories on the East Coast have been below the average range since July. In the latest data for the week ended last Friday, total gas inventories for the region fell to just above 45,000 barrels, hitting their post-hurricane nadir.

Unbeknownst to many, the East Coast has relied more and more on gas imports and gasoline piped in from the Gulf Coast while, in recent years, East Coast refineries have eased off, quietly pulling out of the fuel-making business due to low profit margins.

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Part of the reason for this is that while Gulf Coast refineries can often obtain cheaper oil from places like the Middle East, East Coast refineries have to draw more expensive oil from countries like Nigeria. (Middle East oil is heavier and cruder than the light, sweet Nigerian oil that's easier to process for the nation's ageing refineries. The Gulf has sophisticated facilities to refine heavy crude, but the East Coast does not.)

As a result, the East Coast has become increasingly vulnerable to supply snags, says Jeff Lenard, spokesman for the National Association of Convenience Stores, based in Alexandria, Va. During Hurricane Sandy, imports plummeted to 217,000 barrels a day, just over half the previous week's level and the lowest on record since the EIA began charting the data. At the same time, East Coast refineries dropped to nearly half their operable refining capacity and have only begun to inch back up in the past week.

When the East Coast is cut off from both pipelines and imports – as it was during Sandy – it cannot meet even weakened post-hurricane demand. (Demand figures for the East Coast during Sandy won't be out until January.) "If you're closed, you're out of business," Lenard says. "No gas station wants to be closed for even a day. A lot of people are asking their legislators to do something about this, but we need to do it the right way."

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In Florida, which often gets hit hard during hurricane season, many gas stations are mandated to have back-up generators. As gas stations in the Northeast closed due to power failures, Lenard says, generators would have made all the difference. But there is a catch: they generally cost $10,000 or more each, a price many cannot afford.

At the current rate of recovery, East Coast refineries may not be back to full strength until the second half of December. But imports to the region have already bounced back to pre-Sandy levels, according to the latest EIA data. That, combined with the fact that gasoline rations are no longer needed in New Jersey – where a major pipeline from the Gulf that sustained significant damage – likely means both supply and demand are on the upswing and, with them, gas prices. In the weeks to come, the EIA expects to see a big shift of gas inventories from the Gulf to the East Coast to meet that demand.

The rebound won't protect the East Coast from supply glitches down the road, but it does offer a warning for the New York metropolitan area of its vulnerabilities in case of future storms.

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