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Analysis: Six months after Sandy, New York fuel supply chain still vulnerable

People stand in line with gas cans to fill at one of the few gas stations open on hard-hit Staten Island in New York City following Hurrican
People stand in line with gas cans to fill at one of the few gas stations open on hard-hit Staten Island in New York City following Hurrican

By Sabina Zawadzki and Anna Louie Sussman

NEW YORK (Reuters) - Six months after Hurricane Sandy ripped into the East Coast and triggered one of the worst energy crises in decades, there is scattered evidence companies and state agencies have moved to strengthen complex fuel supply networks against future storms.

But the measures taken by energy firms in New York and New Jersey are uneven, state initiatives remain on paper for now, and in the absence of an industry-wide response it's unclear the region would fare much better should there be a next time.

Hurricane Sandy unleashed a record storm surge that exposed the surprising fragility of New York Harbor's fuel supply chain - the largest, most varied trading and distribution hub in the world - serving America's most populous urban area.

The industry suffered crippling blows at almost every link. Foreign oil tankers were halted by water debris, refineries were flooded and shut, pipelines and storage depots were idled by power cuts and tanker trucks were commandeered by emergency agencies.

At the end of that chain, two-thirds of the region's service stations were unable to dispense gasoline due to power outages, while the rest struggled to procure scarce fuel. Only state-imposed rationing, the first since the Arab oil embargo in the 1970s, eventually tempered the crisis - it took months to fully restore the interdependent web of supply.

Half a year later and some action has been taken. But the measures remain worryingly incomplete, according to interviews with two dozen officials, industry groups and oil firms.

"We would, in essence, be in the same situation minus some additional gasoline stations still having power thanks to backup generators," said Robert Sinclair Jr., spokesman for AAA New York in Garden City, Long Island.

LOGISTICAL NIGHTMARE

Sandy claimed more than 130 lives in the United States and Canada, inflicted tens of billions of dollars worth of damage and left 8.6 million homes and businesses in darkness.

In the following days, two problems emerged with the fuel supply: flooding, which shut down two refineries and numerous terminals; and power outages, which disabled gas stations and the area's biggest pipeline. The problem was not so much a lack of gasoline as an inability to transport it to the right place.

At least a few of the companies at the heart of the supply chain - the storage depots and terminals where bulk deliveries of gasoline, diesel or heating oil are stored then loaded onto tanker trucks for retail outlets - are taking action.

Nustar, whose fuel terminal in Linden, New Jersey, was shut for days, has raised the barriers, or berms, around its tanks, elevated critical cables off the ground to avoid water contact and shifted its office further inland, the company says.

The surge during Sandy led to water overflowing several operators' berms and in some cases lifted partially filled tanks off their foundations, leading to fuel spills.

Coast Guard Commander Linda Sturgis, who oversees emergency prevention at the Port of New York and frequently discusses emergency plans with energy industry players, said several companies were working on improvements including higher berms.

"It takes considerable investment," Sturgis said. "Nobody thought, at the time, that they would need 15-foot berms."

But it is unclear how many of the 57 refined products terminals hit by the storm have taken action.

Motiva, a Royal Dutch Shell Plc and Saudi Aramco joint venture, had to scramble to clean up 380,000 gallons of diesel from its Sewaren, New Jersey, facility, most of which spilled into the thin strip of water between New Jersey and Staten Island.

Shell declined to name specific measures taken since the storm, saying it has "robust emergency response plans that are reviewed and updated in preparation for every hurricane season."

Hess Corp said it regularly updates its emergency plans. Magellan Midstream Partners said its emergency planning was followed safely and operations resumed promptly after Sandy. CITGO and IMTT declined to comment. Together with Nustar, the seven companies are the main terminal operators in New Jersey.

"WE'D DO IT THE SAME WAY"

Sandy also disrupted the flow of refined fuels into the New York area, shutting down Phillips 66's 238,000-bpd Bayway refinery - now the region's lone plant - for a month and halting for three days the 5,500-mile Colonial Pipeline bringing refined products from the U.S. Gulf Coast.

These facilities are more critical than ever after the closure of several East Coast refineries - including a small plant in nearby Port Reading, which operator Hess moved to shut down permanently just months after Sandy.

Some additional safeguards are being put in place.

"We've...made some physical improvements to the Bayway refinery to help better withstand future major storm events, such as elevating electrical equipment," Phillips 66 spokesman Rich Johnson said, declining to say whether the refinery's 11-foot berm would be raised after Sandy's 14-foot storm surge.

Philadelphia Energy Solutions' (PES) 335,000-bpd refinery, which shut down or slowed some units as a precaution during Sandy but ultimately missed the brunt of the storm, sees less reason to protect against what was deemed a 100-year event.

"We came through that storm in superb shape...For three or four weeks afterwards we were supplying 50 percent of the market," PES CEO Philip Rinaldi said. "There's not a lot we would do differently. We'd do it the same way."

PLUGS WITHOUT GENERATORS?

The most definitive government response comes from New York state, in the form of a provision in the 2013-2014 budget that will require gasoline stations on key populous routes to have the necessary wiring for an emergency power generator.

The state will grant $10,000-$13,000 for each station and also requires them to have an emergency generator or be part of a pool from which generators can be leased. But the $17 million program is contingent on New York securing federal mitigation funds and it is unclear whether and when this will happen.

For the majority of stations that are owned by small independent franchise operators, the bigger question is the total cost and availability of generators in an emergency.

"We still aren't sure how much the rental on the generators will cost or how effective that system will work," said Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops.

New York Governor Andrew Cuomo also wants to create a Strategic Fuel Reserve, with the help of federal funding. But the proposal is at an early stage, with the state agency responsible, the New York State Energy Research and Development Authority (NYSERDA), still seeking expert comments.

That agency will also check terminals' back-up power capabilities and resilience against flooding before this year's hurricane season, it said. However it does not have the power to force companies to act on its findings.

A report from a New York City agency set up in Sandy's wake to investigate how the city can become more resilient to future extreme weather may offer more proposals next month.

In New Jersey, a working group appointed to look into ways to improve fuel infrastructure has not made any recommendations as yet, and no legislation has been proposed by the administration.

DRIVERS LEARNED A LESSON

For some in the industry, the best thing the government could do is worry more about demand and less about supply.

Local industry officials say New York should be better prepared to move to rationing that would help contain panic. New Jersey imposed even/odd rationing five days after Sandy and New York ten days after, a period which retailers said was too long.

As the crisis deepened, the Federal Emergency Management Agency (FEMA) commandeered commercial trucks to deliver fuel to critical services such as emergency responders, but promises of free fuel drops went unfulfilled.

"The effect was confusion," says Eric DeGesero, Executive Vice President of the Fuel Merchants Association of New Jersey.

Mike Scott, deputy director of the Department of Defense's Defense Logistics Agency (DLA) which coordinated much of the effort, said Sandy was an "absolute success" for the agency, though it was looking at ways to strengthen the system.

Many drivers, at least, seem to have learned their lesson.

This past February, as a massive snowstorm loomed over the Northeast, motorists rushed to fill up their tanks far earlier than usual, and in greater number, says Brian Fioretti, vice-president at Island Transportation, one of the area's biggest retail tanker-truck distributors.

"Everyone knows you're supposed to go out before a storm and get food, water and gas, but it was taken for granted," he said. "Sandy has changed people's perspective."

(Additional reporting by Selam Gebrekidan, Cezary Podkul, Josh Schneyer, Jeanine Prezioso, Scott DiSavina, Robert Gibbons, Jonathan Leff; Writing by Sabina Zawadzki; Editing by Claudia Parsons)

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