NEW YORK (Reuters) - The biggest U.S. East Coast refinery in Philadelphia began restoring production after Hurricane Sandy on Tuesday and a smaller nearby plant operated without trouble as energy firms began assessing the storm's damage.
While some facilities were still plagued by power outages, the early reports suggested the region's fuel supplies could bounce back quickly after being almost completely halted ahead of Sandy, which came ashore on Monday evening with winds of up to 90 mph (144 kmph) and an almost 14-foot (4.2-metre) storm surge, causing widespread power outages.
Benchmark New York gasoline futures prices, which rallied more than 6 percent ahead of the storm as traders feared a disruption in supplies, dropped more than 2 percent or six cents on Tuesday as the focus shifted to the likely cut in fuel consumption due to grounded flights and empty roads. U.S. crude oil futures rose slightly, reversing Monday's dip.
Operations in the Philadelphia area appeared set to resume quickly. Philadelphia Energy Solutions' 330,000-barrel-per-day refinery, the biggest in the region, escaped damage and was restoring operations, the company said, confirming an earlier Reuters report. Industry intelligence group Genscape said its cameras detected the restart of key crude and vacuum distillation units in the Point Breeze section of the plant.
Delta Air Lines subsidiary Monroe Energy's 185,000 bpd Trainer, Pennsylvania, plant continued operating through the storm, and was expected to reach full rates next week after a major maintenance overhaul, a source said.
The situation will be a tricky for a few days. Phillips 66 reported a power outage at its 238,000-bpd Bayway, New Jersey, plant late on Monday, after it had been shut down as a precaution. Experts say that could slow the recovery at the plant, which was also seen as the most vulnerable to flooding.
"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.
As the storm moved north, a power outage shut Imperial Oil's 121,000 bpd Sarnia, Ontario refinery, but the company said it expected to restart units later in the day.
Colonial Pipeline, a conduit that supplies as much as 15 percent of the East Coast's 5.2 million bpd of gasoline, diesel and fuel demand from Gulf Coast refiners, said it had lost power at is Linden, New Jersey facility in New York Harbor, potentially thwarting efforts to resume pumping.
Three of the area's six key refineries shut down operations in advance of Sandy's landfall, while 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 bpd of imported fuel were starting to reopen. The Port of Boston opened without restrictions and was expected to unload a gasoline cargo later on Tuesday, an official said.
DEMAND DESTRUCTION
John Auers, senior vice president and refining specialist at Turner, Mason & Co. in Dallas, said 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. Following Hurricane Isaac in August, Phillips 66 was forced to clear more than two feet of floodwater from its Alliance, Louisiana refinery, delaying its restart.
Most refineries have some on-site generation equipment that could help restore operations if there are power outages.
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."
The precautionary refinery closures were more widespread than during Hurricane Irene in August 2011, when only the Bayway plant shut completely.
PBF Energy is expected to ramp up its Delaware City refinery after minimal run-cuts later on Tuesday, a source said. Genscape said it had detected elevated levels of flaring at the Delaware City facility, similar to past events associated with minor operational issues.
PBF also curbed rates at its 180,000-bpd Paulsboro plant in southern New Jersey.
There was no word on Hess Corp's 70,000-bpd Port Reading, New Jersey refinery.
SUPPLIES STRETCHED, BUT DEMAND WEAK
Oil traders were already beginning to reconsider the run-up in fuel prices ahead of the storm. 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. Jet fuel consumption of an estimated 170,000 bpd at the three major New York area airports ground to a halt.
Road travel was also limited by highway closures, with major bridges and tunnels shut down. Marine traffic at some of the nation's busiest ports was halted.
"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."
Even if the refineries escape unscathed, damage to the vast network of oil terminals, pipelines and truck racks would 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.
(Reporting By Janet McGurty; additional reporting by Jonathan Leff and David Sheppard in New York, Jeffrey Jones in Calgary; Editing by Michael Urquhart, Chizu Nomiyama and Leslie Gevirtz)
Source: http://news.yahoo.com/u-refiners-assess-damage-sandy-moves-inland-054951534--finance.html
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