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Gulf Coast struggles to get gas flowing through starved pipelines

CNBC logo CNBC 8/31/2017 Tom DiChristopher
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Texas refineries slammed by Harvey aimed to start back up Thursday, but pipeline shutdowns and continued refinery outages in southeastern Texas and Louisiana hampered the effort to get fuel flowing to markets.

Refiners that took the brunt of Harvey's first landfall near Corpus Christi on Friday got the restart process underway on Wednesday. However, about 20 percent to 25 percent of U.S. refining capacity remains offline, creating problems in the pipeline systems that move gasoline and other fuel around the east half of the U.S.

Pipeline operators have been forced to throttle back or suspend flows of gasoline and other petroleum products.

"The major refined product pipelines out of Houston are mostly shut because there is no gasoline and diesel to pump," said Andy Lipow, president of Lipow Oil Associates.

Saudi Aramco-owned Motiva's Port Arthur refinery, the largest in the United States, could remain closed for up to two weeks, sources told Reuters. U.S. gasoline futures prices, already elevated on Thursday, spiked to more than two-year highs following the news.

In a statement, Motiva declined to say how long its Port Arthur refinery would remain offline, saying it would start the process once local flooding receded.

"Given the unprecedented flooding in the city of Port Arthur, it remains uncertain how quickly the flood waters will recede, so we cannot provide a timeline for restart at this time," the company said.

The Colonial Pipeline Company also shut down part of critical lines that transport gasoline, diesel and aviation fuel from Houston through the southeast and up the East Coast to New Jersey. The closure prevented fuel flows along a stretch from Houston to Hebert, Texas.

Colonial Pipeline Gulf Coast status map

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Colonial aims to get the affected portion of the pipeline running by Sunday after it evaluates its infrastructure.

The partial closure is due to a lack of supply from idled refineries, as well as storm damage to Colonial's facilities near Lake Charles, Louisiana, according to Colonial. Fuel deliveries will be intermittent and depend on its ability to receive supplies from refineries and terminals.

Lack of product is also preventing the Explorer pipeline from transporting fuel from Houston to Tulsa, Oklahoma, and onward to Chicago, according to Lipow. However, Explorer has restarted deliveries to Dallas.

Texas City refineries were able to restart operations after Magellan Midstream Partners (MMP) restarted a pipeline to the city from Houston, Lipow reported.

In the Corpus Christi area, where Harvey made landfall as a Category 4 hurricane on Friday, Valero (VLO) was restarting two refineries. Marathon Petroleum (MPC) was also targeting a startup at its Galveston and Texas City plants on Thursday.

The startups will not be immediate because refiners follow a gradual, step-by-step process when they resume operations, explained Jack Gerard, president and CEO of the industry group American Petroleum Institute.

"These are large, sophisticated high-tech complexes, and so they do it in phases, if you will. As they graduate from one phase to the next, it typically takes a few days to do so," he told CNBC's "Squawk Box" on Thursday.

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