While most were focused on U.S. Northeast refineries and the possibility of demand destruction of historic proportions, those are not the only thing that the East Coast may have to deal with. Natural gas got a boost after Reuters reported that U.S. electric companies from Maine to Florida are preparing for heavy wind, rain and flooding that could take down power lines and could close some East Coast nuclear plants with Hurricane Sandy coming ashore. The shutting down of nuclear power plants would increase demand for coal and natural gas. Worries about nuclear power may go beyond that.
The Financial Times reported that the, “Oyster Creek nuclear power plant on the coast of New Jersey, the oldest large commercial reactor in the US, has issued an alert warning of high water levels as a result of Hurricane Sandy, which hit the east coast on Monday night. The alert – the second lowest of four levels classified by the US Nuclear Regulatory Commission (NRC) – signals ‘actual or potential substantial degradation in the level of safety of the plant,’ but no dangerous release of radioactive material.” The FT also said that Chicago-based Exelon, the owner of the plant, which is about 70 miles south of New York and 60 miles east of Philadelphia, shut down the facility for refueling last week, but radioactive spent fuel stored at the site could potentially cause problems. The NRC said water levels in the structure used to take in water for cooling exceeded “high water level criteria” at about 8:45 p.m., because of a combination of a “rising tide, wind direction and storm surge.” It added that it expected water levels to subside over the coming hours. The NRC pointed out that all U.S. nuclear plants had back-up diesel generators to provide power for cooling systems in emergencies, and had flood protection above the levels of the predicted storm surge.
Dow Jones is reporting that an alert has been declared at Exelon’s New Jersey Plant. As if New Jersey did not have enough to worry about. Keep in mind they are reporting more than 7 million people without power.
Gasoline futures retrenched as it became clear that things in New York, New Jersey and Philadelphia will take some time before we can get demand anywhere close to normal. Even here, as far away as Chicago, the closing of our stock markets and the threats of high winds is making traffic extremely light. Many people are staying home and working there if they can. I think that this is a sign that this storm may have a greater impact on demand destruction than many have calculated.
RBOB futures are barely moving and if we get a rally, more than likely it will be led by heating oil. This storm comes against a backdrop of dramatically falling gasoline prices. According to the Energy Information Administration gasoline prices fell more than 11 cents a gallon. Diesel prices fell 8.6 cents per gallon as well.
There of course is a lot of questions about North East refineries but as Barbara Powell from Bloomberg News reported, what is more important in the Northeast is import terminals and pipelines. The rest of the country is more dependent on the area that is known more for blending gas than producing it. The key will be how fast they can bring back the power and allow those pipelines to flow from those very important terminals surrounding New York Harbor. The AP reported, “Owners of the six biggest refineries in the Northeast closed two and cut production at most of the others. That included a full shutdown of the Phillips 66 refinery in Linden, N.J., the second-biggest in the Northeast at 285,000 barrels per day. Power outages and the shutdown of travel in major cities may cut oil demand, "unlike anything we have seen before," wrote Phil Flynn, a senior market analyst for Price Futures Group, in a report on Monday. "The impact on demand may not last for hours but more than likely for days.”
As far as the refineries in the Northeast, we will be waiting to hear about damage reports and then the next question will be when the power can get back on. Reuters is reporting U.S. refinery and pipeline companies that nearly halted East Coast fuel supplies ahead of Hurricane Sandy will begin assessing the storm's damage on Tuesday, hoping that their flood defenses and on-site power will allow a quick return to service. Three of the area's six key refineries — including the two largest — effectively shut down operations in advance of landfall Monday evening for the Atlantic storm. 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 barrels per day (bpd) of imported fuel were also shut, while the northern leg of the Colonial Pipeline from the Gulf Coast was idled. It supplies as much as 15 percent of the East Coast's 5.2 million bpd of gasoline, diesel and fuel demand.
As Sandy's up to 90 mile per hour winds slow over land and its 13-foot storm surge subsides, operators such as Phillips 66 and PBF Energy will assess any damage to their facilities, and will start making plans for restoring operations — a delicate process in the best of times.
If damage is limited, many experts say fuel supplies should resume within a few days, potentially reversing the three-day, 6% rally in benchmark New York harbor gasoline futures as traders shift their focus from the threat of a supply squeeze to the loss of demand from airport and road closures.
