Blackout Squeezes Gas Supply

(AP)  As the summer vacation season winds down, tourists trying to escape high temperatures are facing soaring gasoline prices.

Thursday's power blackout didn't help matters as it temporarily shut down seven refineries in the United States and Canada, worsening an already tight gasoline supply situation. Problems with refineries and pipelines in the West also boosted prices.

Prices at the pump jumped an average of about 10 cents a gallon nationally in the past three weeks and spiked much higher in some places, according to the Energy Information Administration, part of the Energy Department.

The agency said the average price was $1.627 a gallon in the government's latest survey Monday, nearly 24 cents a gallon higher than prices motorists were paying the same time a year ago. Depending on region, prices were 16 cents to 36 cents a gallon higher than last year.

"It's likely that prices will continue to increase through Labor Day; after that demand will fall off," EIA analyst Douglas MacIntyre said Tuesday.

The impact on prices by the refinery shutdowns was blunted because most of them reopened fairly quickly, once electricity was restored, although some were not yet at full production by midweek.

With the exception of one refinery, "we don't think any of them suffered any damage," said Bob Slaughter, president of the National Petrochemical and Refiners Association. He said most restarted Friday or over the weekend and were moving back to normal operation.

But he added: "The supply and demand balance is so tight that if you lose major output even for a day it does have some impact. Almost anything can have an impact on prices."

Last spring, when Mideast oil fields averted any serious damage as a result of the Iraq war, there were predictions of low gas prices through the summer. But then:

-Crude prices increased, staying above $30 a barrel.

-Gasoline stocks remained tight, below normal levels.

-In California, refining glitches developed in the production of ethanol-laced gasoline.

-A major pipeline sending gasoline from Texas to the Phoenix area burst. Prices soared in Arizona and producers began pushing gasoline that would have been used in California into Arizona.

Gasoline prices across the West increased sharply last week, averaging $1.887 a gallon, up 17 cents a gallon in only a week and 36 cents a gallon over the same time a year ago. West Coast gasoline normally is more expensive than that in the rest of the country, but the dramatic increase this summer caught many by surprise.

The refineries that were thrown out of service by the blackout - two near Toledo, Ohio, one near Detroit and four in Canada - only added to other problems that have been pushing up prices, say government and industry officials.

Together, the seven refineries that were shut down process more than 672,000 barrels a day of crude into gasoline and other refined products, according to industry estimates. Typical summer demand nationwide is more than 9 million barrels of gasoline a day.

A Marathon-Ashland refinery near Detroit was still out Tuesday after an explosion in its boiler unit during the blackout-related shutdown Thursday, officials said. It is expected to be back in operation soon, they said.

Ed Murphy, a vice president at the American Petroleum Institute, said gasoline stocks have been affected by the tight inventories, higher than expected demand and the high cost of crude oil, which has stayed above $30 a barrel.

"We've had a big demand increase in the last few weeks," said MacIntyre of the EIA. He said gasoline use increased by about 300,000 barrels a day this summer, compared with last summer. Demand peaked at a record 9.6 million barrels a day during the third week in July, according to EIA.

Wholesale gasoline prices spiked in after-hours trading Thursday when traders feared the blackout might force refineries down for a longer time, but then receded when the shutdowns appeared to be short in duration, said Kyle Cooper, an energy analyst for Citigroup Global Markets in Houston.

Cooper predicted the price impact would be minimal. "You might see another couple of pennies" added at the pumps because of the blackout, he said.

Things could have been much worse.

MacIntyre said a massive New Jersey refinery, owned by ConocoPhillips, which processes 250,000 barrels of crude a day, continued operating even though the blackout shut down a power plant on site. If the refinery had gone down there could have been a major supply problem in the Northeast, he said.

As it was, refineries in New Jersey and Pennsylvania and along the Gulf Coast - which account for much of the supplies in the Northeast and Midwest - were not affected, he said. As a result price increases in the Midwest were on average only 3 cents to 4 cents a gallon higher this week over the previous week, according to the EIA.


By H. Josef Hebert