Northeast US refiners scale back production as Hurricane Sandy strikes


PBF Energy is operating its refineries in the northeast at reduced rates, the company said Monday, the latest refiner to scale back operations as Hurricane Sandy approaches the east coast.

PBF is reducing rates at a 180,000 bpd refinery in Paulsboro, N.J., and a 190,000 bpdrefinery in Delaware City, Del., would be at reduced rates but fully staffed during the hurricane, the company said.

[Image of 3-day forecast, and coastal areas under a warning or a watch]PBF has also closed the docks at the two refineries, meaning that no crude oil would enter the refinery and no fuel products would leave, a person familiar with the refinery said.

Analysts with Tudor, Pickering, Holt & Co. estimate that about two-thirds of refining capacity along the US east coast is estimated to have been shut down because of Sandy, a Category 1 hurricane expected to make landfall late Monday in the Northeast.

The drop in production has so far had little effect on retail prices, however, because short-term demand is expected to virtually disappear as drivers stay home and flights are cancelled. The average New York gasoline price for regular is $3.92/gal, down from $3.93 on Sunday.

But if the storm creates major damages to refineries, or flooding leads to long-lasting power outages, there could be an impact on fuel prices, as a wave of refinery closures have eroded the region's capacity to make fuel and left it with little leeway in case of an emergency.

Gasoline futures in New York for November delivery traded at $2.79/gal on the New York Mercantile Exchange, up 9.3 cents early Monday.

"The worst case scenario has become closer to becoming a potential reality," said Matt Smith, analyst at Summit Energy. "It depends on what we see with power outages - all it would take would one of these big refineries to go down" for gasoline prices to stay high.

About 6.5% of total US refining capacity is near the region in Sandy's forecast path, according to the US Energy Information Administration.

On Sunday, Phillips 66 began shutting down its Bayway refinery in Linden, N.J., and the company said it expects the refinery to be completely idle by Monday. Phillips 66 fuel terminals in Riverhead, N.Y. and Tremley Point, N.J. have already been shut.

"Decisions regarding restarting these operations will be made once the storm has passed and post-storm assessments have been completed," the company said.

Philadelphia Energy, which operates a former Sunoco Inc. refinery in Philadelphia after buying a majority stake in September, was discussing reducing rates of some production units at the 330,000 bpd refinery, a person familiar with the refinery said.

Hess Corp. said Sunday it would reduce rates at its 70,000-bpd refinery in Port Reading, N.J., by an unspecified amount.

Trebor Banstetter, a spokesman for Delta Air Lines, said the company's 185,000-bpd refinery in Trainer, Pa. continued to monitor the storm, but it was still running.

"The predicted storm conditions have not reached the severity levels where they would start shutting down operations at Trainer," he said.

Dow Jones Newswires

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