ALEXANDRIA, Va.—Colonial Pipeline Co. over the weekend announced it was the victim of a cybersecurity attack, believed to involve ransomware, and shut down certain systems to contain the threat, which temporarily halted all pipeline operations and affected some IT systems. Colonial Pipeline on Saturday said it was focusing on the safe and efficient restoration of service and a return to normal operation.The Colonial Pipeline is the largest refined products pipeline in the United States, a 5,500-mile system that transports more than 100 million gallons of fuel daily from Houston, Texas, to the New York Harbor.
On Sunday, the company said that its operations team is developing a system restart plan: “While our mainlines (Lines 1, 2, 3 and 4) remain offline, some smaller lateral lines between terminals and delivery points are now operational. We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations.”
The Colonial Pipeline cyberattack follows the SolarWinds malware attack that struck an estimated 18,000 organizations spanning the private and public sectors in North America, Asia, Europe and the Middle East, and another of Microsoft’s Exchange e-mail service.
To create more flexibility for motor carriers and drivers, the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration has issued temporary hours of service exemption for commercial operations to transport gasoline, diesel, jet fuel and other refined petroleum products to Alabama, Arkansas, District of Columbia, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Virginia.
Impact on Fuel Retailers
Supply outages can result in changes in the wholesale price of fuel that is reflected in gas prices at the pump.
In 2017, the pipeline experienced flooding and power loss at its Linden, New Jersey, facility during Hurricane Sandy. Colonial shut down the segment of its mainline system that serves markets in Philadelphia, New Jersey and New York Harbor. Portable generators were brought in to power the Linden facility and restore normal flows on the line following an outage of about five days.
In 2016, the Colonial Pipeline faced two outages, both to Line 1 that carries gasoline from Houston to Greensboro, N.C. Beginning September 9, a 12-day disruption led to significantly higher gas prices, particularly in the Atlanta area. A second six-day outage that began on October 31 from a deadly fire had a minimal effect on gas prices.
Convenience stores sell approximately 80% of the fuel purchased in the United States. When disruptions to both pipelines and refineries occur, fuel retailers, who often receive multiple shipments each day, are susceptible to changes in product availability and volatile wholesale prices.
Also impacting current conditions is the change in seasons. With the summer drive season nearing, retailers located in areas of the U.S. that require summer-blend fuels have until June 1 to switch to summer-grade gas. Summer-blend fuel is more expensive to make than winter-blend fuel. The production process takes longer and the overall yield of gasoline per barrel of oil is lower. These complexities add as much as 15 cents per gallon to the cost to produce these higher-grade fuels.
The Wall Street Journal reported that inventories of gasoline have been readied for the summer driving season and usually get replenished every five to six days. Andy Lipow, president of consulting firm Lipow Oil Associates, commented that if the pipeline remains offline for days, shortages at terminals that receive fuel in the Southeastern U.S. and Atlantic coast markets could begin to affect retail stations and consumers.
“It’s similar to a hurricane event where the pipeline gets shut down, so if it’s for a day or two then the impact will be mitigated,” Lipow said.
The Colonial Pipelines and Retail Fueling
When the Colonial Pipeline is disrupted, the Eastern Seaboard is affected.
Overall, the Colonial Pipeline carries about half of all the fuel used in the Southeast and East Coast. There are a few reasons for this dependence on the Colonial Pipeline. First, there is limited refining capacity in the Northeast. Refineries in this region only produce about 65,000 barrels per day of gasoline, and there are no significant refineries between Alabama and Pennsylvania.
Second, the Jones Act places constraints on the amount of fuel that can be delivered via barge from the Gulf Coast to the Eastern Seaboard. The Jones Act requires that all cargo ships that travel from one U.S. port to another must be U.S. owned and operated. The requirements of the Jones Act can make it more expensive and more difficult to ship fuel from the Gulf Coast to the East Coast.
Product travels slowly through pipelines at a speed of 3 to 5 miles per hour, or walking pace. On average, it takes about 18 days for fuel to travel from Houston to New York City.
For more information on the complexities of the U.S. pipeline system and how disasters affect supply at the retail level, read the NACS Fuels Resource Center’s “How Refineries and Pipelines Resume Operations” page.
In a recent Convenience Matters podcast, “How Fuels Move Through the Pipeline,” Daniel Gordon, vice president and chief commercial officer for the Colonial Pipeline, talks about how product moves through the pipeline, which serves roughly 50% of the fuel delivered to the East Coast to convenience and fuel retailers, airports and government facilities.
To learn how to protect your business against ransomware attacks, see “Damage Control” in the April 2021 issue of NACS Magazine.