Gasoline rationing will continue through the holiday in New York City as electricity outages and supply shortages continue to plague the area in the wake of super-storm Sandy. The rationing mechanism allows motorists to only purchase fuel on odd or even days corresponding to the last digit of their license plates. With about 30 percent of gas stations still offline and traveling expected to ramp up for Thanksgiving, the system is designed to alleviate gas stations pressured by long lines, frustrated consumers, and short supply.
Hurricane Sandy and the Nor’easter that followed took a heavy toll on East Coast infrastructure, particularly in New Jersey and New York. While major pipelines remain operational, a long delay in tankers being able to make port and continuing power outages have helped drive gas prices in the region above the national average of about $3.41 per gallon.
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Many refineries in the Northeast shut down in advance of the storm and some have yet to come back online. Refineries operated by Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB) and Phillips 66 (NYSE:PSX) are running at limited capacity and might not be up to speed for another few weeks.
Hess (NYSE:HES) has been working to fully restart production at its facility in Port Reading, New Jersey. Partial power has been restored to the facility but extensive flood damage will delay production starts at several refineries in the state.
Post-storm reports are indicating that some of the supply shortages could have been foreseen. Low profit margins in the Northeast have been slowly driving down refining activity in the area for a few years, increasing the region’s dependence on fuel imports from the Gulf Coast. Inventories on the East Coast also hit 10-year lows prior to the storm. While distribution and power remain the major impediments to fuel access, the region might have been able to better prepare.
The damage caused by Sandy will serve as a lesson for oil and gas companies the next time a major storm threatens the East Coast. Both refineries and gas stations will have to take steps to protect themselves from damages and formulate a strategy for coming back online more quickly in the aftermath. Supply shortages and power outages are inevitable after such a major storm, but an awareness of the regions fuel infrastructure and its disaster readiness will be necessary to mitigate future damage.
Large retailers in the region like Exxon Mobil (NYSE:XOM) and BP (NYSE:BP) cite power outages above fuel shortages as the reason why they can’t open shop. Many stations are sitting on tanks of gas that can’t be pumped because the stations don’t have power. Now that the storm has come and gone and the damage has been evaluated, the next hurricane to barrel down on the East Coast should hopefully be met by more prepared distributors with a more competent recovery plan.
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