New England Could See (Bigger) Gas Price Spikes Following Refinery Closures

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Refinery closures could trigger bigger gas price spikes

The quirky calculus of oil price economics is notoriously complex.  What that often translates to, in terms of media coverage, is continual score-keeping.  How much have prices risen over the past week?  From this time a month ago?  A year ago?

Foster’s Daily Democrat is particularly good at keeping up with the flow of figures.  For example, the newspaper noted New Hampshire saw an average price increase of 5.3 cents a gallon last week.  The national average price spike was much lower, at only 1.4 cents per gallon.  Foster’s reports:

“Including the change in gas prices in New Hampshire during the past week, prices Sunday were 21.7 cents per gallon higher than the same day one year ago and 15.4 cents per gallon higher than a month ago…

The national average has increased 16.8 cents per gallon during the last month and stands 17.2 cents per gallon higher than this day one year ago.”

In other words, New Hampshire has seen both higher- and lower-than-average price spikes than the nation as a whole, depending on the time frame.  But this kind of cost tracking takes on a different dimension when you look at Steve Hargreave’s recent report for CNN Money:

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New England drivers could feel the pinch over the next few months

“While gas prices soar to record levels, many U.S. refineries that make and sell gasoline are going broke.

Nearly 50% of the refining capacity on the East Coast has either shut down or may shut down within the next few months.

If gas shortages develop due to the closed refineries, East Coast drivers could face higher prices than they otherwise would later this year.”

Hargreaves points out that Sunoco “closed its Philadelphia-area refinery Marcus Hook refinery in December.”  The company’s also trying to unload a nearby facility.  Sunoco says over the past three years, its refining operations have been losing $1 million a day.  And apparently ConocoPhillips is in the same boat.  That company closed its Philadelphia-area refinery last fall.  Hargreaves writes:

“If all three refineries were closed, that would leave just six operating refineries in the Northeast.

The refineries are losing money because they are old and cannot process the cheaper, heavier types of oil that are increasingly in supply from Canada’s oil sands, Saudi Arabia, Venezuela and elsewhere.”

But ultimately, Hargreaves reports, the problem isn’t a nationwide gas shortage.  Rather, oil companies don’t have the infrastructure to transport fuel to the Northeast.  A piece by Erin Ailworth for Boston.com digs into the New England-specific problems:

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Gulf Coast refineries can't meet the Northeast's demand

“‘You don’t have refineries in New England, you don’t have pipelines,’’ [American Petroleum Institute chief economist John] Felmy said. “You’re really an island’…

Gulf Coast refiners have extra supplies to offset the loss of production in the Northeast, but pipelines that carry gas, diesel, and heating oil from the Gulf Coast to the region do not necessarily have capacity for the additional volume, according to an analysis released…by the Energy Department.

Other transportation can be considerably more expensive. Shipping petroleum by train, for example, can cost 40 cents a gallon, compared with 4 cents by pipeline, according to industry officials. Transportation and marketing expenses account for about 6 percent of the cost of gasoline at the pump, according to the Energy Department.”

At this point, Steve Hargreaves writes for CNN Money that analysts expect gas prices in the Northeast to peak along with demand–in the summer months.  While his report doesn’t dig into the size of the potential price spikes, Ailworth’s older Boston.com piece did throw out some estimates.  Depending on whether the third Philadelphia refinery closes, analysts predicted in March that prices could go up five to 15 cents per gallon each month–maybe for up to a year.  And they say that rate of increase could put us well within the reach of $4 a gallon.