6 Fuel Updates From Tropical Storm Harvey

HOUSTON -- While flooding from Tropical Storm Harvey continues, the effect on the fueling infrastructure of southeast Texas also is playing out.

As of Tuesday, Aug. 29, about 2.33 million barrels per day (b/d) of Texas refining capacity was offline because of shutdowns connected to Tropical Storm Harvey, according to S&P Global Platts. This represents about 12.6% of U.S. refining capacity. However, with many of the refineries still in operation running at 50% or lower capacity, the true figure of affected production may actually approach 18% of total U.S. capacity.

The Texas and Louisiana Gulf Coast combined represent 8.64 million of the country’s 18.557 million b/d of refining capacity.

This pressured supply is rippling downstream. Here are six updates on how Tropical Storm Harvey is affecting Texas fuel retailers and consumers.

With the refinery shutdowns, gas stations in the counties outside of the declared disaster areas in Texas are facing pinched fuel supply.
 
“The fuel and convenience industry in Texas has responded very well considering the magnitude of this disastrous situation,” said Paul Hardin, president of the Texas Food & Fuel Association, Austin, Texas. “TFFA is working with industry partners to ensure fuel is distributed to vital areas.”
 
Although fuel terminals in the southeastern part of the state are reopening with limited product, some distributors are reporting that their trucks are waiting more than four hours to refuel, according to TFFA. Flooding in the Houston area is also complicating fuel distributors’ access to supply.
 
“In some areas we are seeing fuel outages, or stores closed due to non-fuel related issues, including infrastructure damage, flooding and lack of electricity,” said Hardin. “With a number of refineries shut down, the supply of fuel could be an issue for a week or so, depending on how long the rain continues in the affected areas.”  

As the U.S. Environmental Protection Agency (EPA) waived regulations on gasoline and diesel for areas of Texas and Louisiana affected by Tropical Storm Harvey, a biofuels industry group asked it to relax Reid vapor pressure (Rvp) requirements for finished gasoline through Sept. 15, which would enable retailers to sell E15, the 15% ethanol blend. The aim would be to increase potential supply and ease any shortages in areas affected by Tropical Storm Harvey. 

“Ethanol is priced roughly 20 cents per gallon below gasoline blendstock today, and supplies are ample in all regions of the country,” said Bob Dinneen, president and CEO of the Renewable Fuels Association (RFA), Washington, D.C., which sent the letter to EPA head Scott Pruitt on Aug. 28. “We are simply asking EPA to take action that would allow gasoline blenders to maximize their use of low-cost, locally available ethanol supplies to help alleviate gas price spikes resulting from Hurricane Harvey.

“In effect, we are requesting that EPA end the summer Rvp control season a few weeks early so that ethanol can more effectively help with the current fuel supply emergency,” he said.

On Aug. 30, the EPA waived reformulated and low-volatility gasoline requirements through Sept. 15 for Alabama, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Texas, Louisiana and the District of Columbia. This would appear to end summer volatility regulations early, and open the door to the use of winter-formulated gasoline in conventional gasoline areas, Dinneen told DTN. 

"This allows for the sale of E15 in those conventional gasoline areas of the states covered by the waiver and is effectively what we asked of the agency on Monday,” Dinneen said.

 

In the wake of Tropical Storm Harvey, the Texas attorney general’s office has received consumer complaints about price gouging by area gasoline stations.

Kayleigh Lovvorn, a spokesperson for Attorney General Ken Paxton, told The Hill that the office has gotten at least 600 complaints from consumers about Harvey-related fraud, with most related to price gouging on products from gasoline to bottled water to groceries. 

Several gas stations have been accused of selling gasoline for $3.50 per gallon, and one Houston convenience store was reportedly selling fuel for $20 per gallon. (As of Aug. 25, the retail average for regular-grade gasoline in Houston was around $2.1035 per gallon, according to the Lundberg Survey.) 

In the example of the retailer reportedly charging $20 per gallon, the attorney general responded to the complaint that same day.

Penalties for businesses convicted of price gouging range from $20,000 per incident to up to $250,000 per incident, with the higher fines reserved for those that victimize consumers older than 65. “So there's some severe penalties, and we're looking for them, and we'll be coming after them," said Paxton.

The attorney general is asking consumers to report price gouging to the office's toll-free hotline, or email the office. 

The U.S. Department of Energy (DOE) is releasing 500,000 barrels of oil from the Strategic Petroleum Reserve (SPR) to help ease fuel-price spikes triggered by Tropical Storm Harvey, Reuters reported. 

The DOE is releasing the oil to Phillips 66’s refinery in Lake Charles, La., which has not been affected by the storm. This will mark the first emergency release from the SPR since 2012, and comprises 200,000 barrels of sweet and 300,000 barrels of sour crude oil. The release is an “exchange agreement,” essentially a loan of crude to Phillips 66, which will have to replace the oil to the SPR later.

DOE spokesperson Jess Szymanski said the department would “continue to provide assistance as deemed necessary, and will continue to review incoming requests for SPR crude oil.”

The SPR was created in the 1970s after the Arab oil embargo caused large supply disruptions. It holds about 679 million barrels of oil. Reuters noted that the 500,000-barrel release is minor considering the United States’ 20 million-b/d petroleum consumption.
 

QuikTrip will stop selling fuel at about half of its 135 stores in North Texas to deal with supply disruptions in the state from Tropical Storm Harvey, Star-Telegram reported.

The Tulsa, Okla.-based chain plans to post on its website a list of North Texas stores with fuel available. Stores for those sites without fuel will remain open to offer bagged ice, beverages and other goods.

“QuikTrip is going to designate certain stores in all quadrants of the Metroplex and make sure those particular stores will have gasoline,” spokesperson Mike Thornbrugh told the newspaper. “We have been through this in the southeast Atlantic area. If we tried to keep every store full of gasoline, we’d have outages everywhere.”

There is no timeline yet for having fuel available at all sites.

“Nobody knows the extent of the damage to the pipelines and refineries,” Thornbrugh said. “They’re under water.”

Meanwhile, projections that fuel prices could jump by double digits nationwide because of supply issues from Tropical Storm Harvey refinery outages are "nonsense," Joe Petrowski, former head of Gulf Oil and founder of Mercantor Partners, told CSP Daily News. The case against a large price increase, in his words:

• “The United States consumes 14 million b/d of fuel (gasoline and diesel).
• Demand is trending down seasonally and secularly.
• We have almost 400 million barrels of refined products in stock, so even if 10% of refineries were shut down for one year, we would have supplies for one year of consumption.
• Retailers are now focused on volume retention like never before, so “holding the line” on prices is the new mantra.
• Rules are in place to discourage any price increases to the upside and every state attorney general and bureaucrat is on hyper alert to gain a headline and torture a noncompliant oil baron.
• Reputational damage is too great for any retailer to try and take advantage of Harvey’s misery.
• None of the pipelines or trucking infrastructure has been impaired.
• Winter-blend fuels will add less-expensive blending components.
• The claim that prices will rise 20 to 25 cents is simply outrageous. One to 3 cents max over the next three weeks, then a resumption of the downtrend in prices.”