How Hurricane Sandy Will Impact Gasoline Prices

October 29, 2012 | 1:36 PM

The entrance to the Benjamin Franklin Bridge in Philadelphia. The Delaware River Port Authority has banned truck traffic from the city's bridges due to high winds.

It’s not an easy thing to shut down a refinery, so operators like to get ahead of any potential power outages by reducing or halting gasoline production in an orderly way before a major storm hits. Several refineries in Pennsylvania and New Jersey have plans to shut down or reduce their output ahead of Hurricane Sandy’s high winds. Bloomberg reports that three New Jersey plants are idling operations, while plants in the Philadelphia region are scaling back. Monroe Energy in Trainer, Delaware County, continues its operations. Philadelphia Energy Solutions, the former Sunoco refinery in South Philadelphia, have shutdown several units, while others are in “standby” mode.
Patrick DeHaan, who writes for the blog Gasbuddy.com, says it’s perfectly normal for refineries to shut down in the wake of large hurricanes. In the aftermath of Hurricane Katrina, prices at the pump shot up due to the refinery closures along the Gulf Coast. But DeHaan says that’s not necessarily what will happen this time.
“The biggest impact here is not the storm,” says DeHaan. “The key factor is how long will they remain offline. The shut down is mitigated by less people on the road. New York City is shut down. Demand is taking a huge drop today.”
An analyst with the energy market research firm Genscape, says it makes more sense to shut down ahead of the storm, but it’s unclear how soon refineries will be able to restore operations.
“A lot of the refineries are engaging in a full shutdown because the damage is more severe and restart process lengthier if power is lost while running at reduced rates,” said Adam Kovacs, on Genscape’s Hurricane Sandy blog. ”
Kovacs says depending on flood damage, it could take refineries from one to four weeks to fully restart.

The entrance to the Holland Tunnel in New York City is usually bumper to bumper traffic. New York Gov. Andrew Cuomo has closed the Tunnel that connects the city to New Jersey. Less cars on the road may mitigate the effects of East Coast refinery closures.

GasBuddy’s DeHaan says drivers are unlikely to see a resulting spike in gas prices in the next day or so, but later, there may be a short term increase of five to 15 cents. On the other hand, he says East Coast residents not used to these types of large storms may stay off the road for some time. If that’s the case, and some refineries continue to operate at a reduced capacity, DeHaan says a decreased demand will make up for any reduction in gasoline supplies.
But Forbes is reporting that refinery shutdowns, combined with an already reduced supply, could cause a price hike.

Due to low inventories, the East Coast is “totally unprepared for this disaster,” explained economist Phil Verleger. The reality is that Hurricane Sandy has already forced refiners to shut down their operations, and this is coming in a time of thin inventories in the East Coast.

PECO, which provides electricity for the Philadelphia area, has reported 20,000 customers without power on Monday afternoon. But the storm is expected to worsen Monday evening, with winds gusting up to 75 miles an hour.