The biggest fuel pipeline in the U.S. shut its mainlines Monday after an explosion and fire in Alabama that killed at least one person. Gasoline futures surged and U.S. refiner stocks gained.
Colonial Pipeline Co., which carries refined products to New York Harbor from Houston, shut the lines for the second time in two months. A contract crew working miles from the site of a Sept. 9 spill ran into the pipeline with a trackhoe, igniting gasoline and causing a fire, Colonial said in a statement. One person died at the scene and five others were transported to Birmingham-area hospitals for treatment. The spill in September shut the line for 12 days, cutting supplies to 50 million Americans in the Southeast.
The pipelines remained shut and fire continued to burn as of 10:45 p.m. Monday local time, Colonial said in the statement. Emergency crews built a barrier 8 feet (2.4 meters) tall and 80 feet long to contain the burning fuel, Alabama Gov. Robert Bentley wrote on Twitter. Major fuel suppliers began notifying wholesalers in South Carolina late Monday of allocations.
The southeastern U.S. is “highly dependent on pipeline supplies from Colonial and, ultimately, Colonial flows form the baseline of U.S. East Coast supply,” Robert Campbell, head of oil products research at Energy Aspects Ltd. in New York, said in a note. The longer the mainlines are offline, “the more upward pressure will be placed on U.S. East Coast fuel prices, while downward pressure will be exerted on U.S. Gulf Coast product prices.”
December gasoline futures rose as much as 21.56 cents, or 15 percent, to $1.6351 a gallon, the biggest intraday gain for an active contract since 2008. The New York Mercantile Exchange contract, which is for supplies delivered into New York Harbor, traded at $1.5775 at 1:37 p.m. Singapore time.
The explosion and fire comes as the U.S. oil industry faces a backlash from environmentalists opposed to building new pipelines, including the controversial $3.8 billion Dakota Access oil pipeline. Last year, the Obama administration rejected the Keystone XL project. In early October, climate change activists disrupted oil flows by turning off valves in several remote pumping stations along the Enbridge Inc.’s main pipeline, which runs from Canada to the U.S. Midwest
Colonial, owned by a group that includes Koch Capital Investments Co. and a unit of Royal Dutch Shell Plc, had to shut its 1.3 million-barrel-a-day gasoline line after an 7,370-barrel leak was discovered Sept. 9. It built a temporary bypass that allowed it to resume shipments on Sept. 22, which its had planned to remove between late-October and mid-November. Now both the gasoline mainline and the mainline that transports diesel and jet fuel are shut.
Colonial — and to a lesser extent the smaller Plantation Pipe Line Co. — play a key role in supplying the U.S. Southeast because there aren’t any refineries between Alabama and Pennsylvania that produce substantial quantities of transportation fuels. The region is supplied primarily by pipelines from refineries along the U.S. Gulf Coast, according to the U.S. Energy Information Administration.
While Colonial has a capacity of 2.6 million barrels a day of refined products, the Plantation pipeline carries just 700,000 barrels a day.
Several major U.S. refiners gained in after-market trading as gasoline’s premium to Brent crude, a theoretical profit margin for many fuel makers, jumped as much as 60 percent to $18 a barrel before paring gains to about $14. Phillips 66, which operates a refinery near New York City, gained 1.7 percent to $82.50 on the New York Stock Exchange after closing at $81.15 a share Monday. Valero Energy Corp. and Marathon Petroleum Corp. also rose.