Gasoline rises on refining and pipeline issues

Gasoline Oxy Morons

Against a backdrop of rising supply and a murky economic backdrop, RBOB gasoline rises up out of the ashes. Ok maybe not ashes but rising on refining and pipeline issues as we get ready to top off the tank for the upcoming kickoff to the summer driving season.

Just when things were looking so good for gas it just had to happen. Of course now the rest of the country might get a small taste of what the Chicago area has been struggling with. The Chicago gas prices have gone crazy as two of the three refineries that make that special "Chicago Gas,” which is that politically concocted blend that only a mandate from the state, federal and local government could dream up creates mandated shortages every spring. Midwest gas supply is at multi-decades low as the rest of the country enjoys a bounty of supplies that are at the highest levels since the 1930s.

Yet from coast to coast it seems the gasoline gremlins are at work. In California, Bloomberg reported that BP Plc's Carson oil refinery, the second-largest in California, performed an unscheduled shutdown of a crude unit yesterday and cut rates at two others for repairs, a person with knowledge of operations said.  The No. 4 crude unit was taken out of service to fix a valve leak and for exchanger work, and the No. 1 and No. 2 units are running at reduced rates, said the person, who asked not to be identified because the information isn't public. The plant is processing about 45,000 barrels less a day during the work, the person said. 

Also Colonial Pipeline Co. shut Line 1 pipeline for about one hour after a leak was detected yesterday, Steve Baker, a company spokesman said by e-mail to Bloomberg. They said that operations were safely resumed downstream of Hebert at normal levels and that operations from Houston-origin sources will resume once the source of gasoline found on a right of way is determined and  repairs are completed, Co. They say they do not know how much gasoline spilled.

Natural gas pulled back after a bearish injection number. The Energy Information Administration reported that working gas in storage was 1,964 Bcf as of Friday, May 10, 2013, according to EIA estimates. This represents a net increase of 99 Bcf from the previous week. Stocks were 694 Bcf less than last year at this time and 83 Bcf below the 5-year average of 2,047 Bcf. In the East Region, stocks were 105 Bcf below the 5-year average following net injections of 55 Bcf. Stocks in the Producing Region were 29 Bcf below the 5-year average of 825 Bcf after a net injection of 31 Bcf. Stocks in the West Region were 51 Bcf above the 5-year average after a net addition of 13 Bcf. At 1,964 Bcf, total working gas is within the 5-year historical range.

Reuters is reporting that "North America should have enough power to meet electricity demands this summer, the region's electric reliability organization said on Thursday.   But continued growth in Texas coupled, with only a small amount of new resources in the state, could cause problems there, the organization, the North American Electric Reliability Corp (NERC), said. NERC is a not-for-profit entity that develops and enforces power reliability standards in the United States. Its territory covers the continental United States, Canada and the northern portion of Baja California in Mexico.  "However, continued peak demand growth in Texas coupled with only a small amount of new resources made available this summer is causing resource adequacy projections to fall below targets," he said.

NERC said it will closely monitor the situation in the Electric Reliability Council of Texas (ERCOT), which oversees the power grid in most of Texas, as well as impacts from persisting drought conditions in the west. In ERCOT, NERC said the anticipated reserve margin is 12.88 percent for this summer, which is below NERC's 13.75 percent target for the area. NERC warned that insufficient reserves during peak hours could lead to increased risk of emergency operating conditions, including curtailment of interruptible load and even rotating outages.  Interruptible load includes mostly industrial companies that pay less for power with the understanding that their supplies may be reduced or cut off if needed.     ERCOT, Texas regulators and Texas power companies have long been aware of the potential shortfall and have been taking action to tackle the problem for this summer and in the long term. NERC also warned of tight power supplies in Southern California that may lead to "operational challenges" due to the continued shutdown of the San Onofre nuclear power plant since January 2012. "A prolonged or extreme heat wave could result in localized controlled load shedding in San Diego and Los Angeles Basin to maintain integrity of the system," NERC said. Power companies in California expect several system enhancements to be in service by the summer peak, which "should relieve some operational issues and support system flexibility during conditions of stress," NERC said.

NERC warned that increased reliance on wind and solar power resources in regions with a lot of renewable generation could pose challenges for some operators to get other plants online when the sun stops shining and the wind stops blowing. NERC also said drought conditions west of Mississippi River could pose localized problems for some generators.    The retirement and retrofit of power plants to meet environmental regulations is not expected to cause immediate reliability concerns, NERC said   NERC also said it was watching for above-average growth in peak demand in Texas and the West, that it was expecting an active hurricane season this summer, and that it was keeping an eye on increasing dependence on natural gas to fuel power plants across the country as coal units retire.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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