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May 7 (Bloomberg) -- Florida, the biggest gasoline market on the U.S. East Coast, is enduring a supply squeeze and higher prices just a month before the start of the hurricane season.
The state, surpassed only by California and Texas in gas consumption, has no refineries and relies on tanker and barge deliveries for 97 percent of its supply. Retail gasoline has risen to the third-highest level ever seasonally and stockpiles are about 7 percent lower than a year ago.
Florida’s fuel market underscores how the shale-oil revolution created winners and losers, with the Gulf Coast awash in cheap crude and other regions missing out because they lack transportation and refining capacity. A shortage of U.S.-flagged tankers that Florida relies on for deliveries and hurricanes after June 1 may spur higher prices.
“People are thinking we’re flush with oil and that there’s more stability and lower prices,” Ryan Mossman, a vice president at FuelQuest Inc., a fuel management firm in Houston, wrote in an e-mail May 5. “What we’re seeing in Florida exposes the fragility that still exists in the supply chain.”
Energy producers are using hydraulic fracturing and horizontal drilling to reach oil trapped in shale formations, boosting production to the highest level in 26 years. The boom helped the U.S. meet 87 percent of energy needs in 2013, the highest since 1985, according to the Energy Information Administration.
Gasoline stockpiles in Southeastern states including Florida slid for eight consecutive weeks to 20.9 million barrels on March 28, the least since November 2012, EIA data show. A three-day shutdown of the Houston Ship Channel in March, the result of a crash that caused a 4,000-barrel spill, exacerbated the decline as fuel deliveries from Louisiana and Texas refineries to Florida ports were cut off.
Retail gasoline in Florida averaged $3.676 a gallon on May 5, the third-highest level for this time of year since at least 2003, EIA data show. Chevron Corp. is selling wholesale, gasoline in Fort Lauderdale yesterday for $2.7918, according to DTN Televent data. Gasoline futures rose 1.1 percent to $2.9182 a gallon today on the New York Mercantile Exchange.
Danny Alonso, owner of fuel distributor MacMillan Oil in Hialeah, Florida, had supplies rationed daily when the Houston Ship Channel closed and often ran out. The shortages forced station owners to raise prices and some to shut for hours at a time, he said.
The market is so tight now that “any hiccup is going to be reflected big time,” Alonso said by telephone April 22. “So what happens when a hurricane shuts down the Gulf for a week or 10 days?” The Atlantic storm season runs through November, typically peaking in September. Florida has been struck by more tropical systems than any other state.
An El Nino weather system that can create winds capable of ripping budding hurricanes apart may help spare Florida late in the season. There’s a 65 percent chance the Pacific Ocean warming pattern will develop after August, according to the U.S. Climate Prediction Center in College Park, Maryland.
Fuel companies are dealing with the aftermath of the Houston channel shutdown as they work to supply a record 100 million tourists expected to visit Florida this year as well as a population that has grown to just shy of New York. Some are driving to Georgia in search of supplies from a Colonial Pipeline Co. spur that delivers to Bainbridge.
Drivers for Port Consolidated Inc., a fuel distributor in Tampa, are waiting as long as two hours to fill their trucks at port terminals, Rick Williams, operations manager with the company, said by telephone yesterday.
“Every day we go the ports and we just hope we get our trucks loaded,” Williams said. “One day there’s no gasoline, the next day there is no diesel. It’s a crapshoot.”
Florida has taken measures to improve its response to supply disruptions, by strengthening port security and efforts to reopen ports and roads after natural disasters, Bryan Koon, director of the state’s Division of Emergency Management, said by telephone from Tallahassee on May 5.
“Restoring the critical infrastructure, power and communications to facilitate the flow of fuel -- that’s where we’re focused,” he said. “Yes, hurricane season is coming up, but frankly, the petroleum industry in Florida is pretty resilient.”
Florida’s Port Everglades, one of its largest fuel delivery point, is taking 300,000 barrels a day of refined products, with almost three-quarters coming from other parts of the U.S., Paul Stanton, director of petroleum at the port, said by telephone yesterday.
“Our volumes are steady, but we’re hearing that it’s a tight market for U.S.-flagged ships,” Stanton said. “Vessels to move product are hard to find.”
Only 42 tankers meet the criteria to carry oil and refined products between U.S. coasts, RBN Energy LLC said in a research report Jan. 12. Those available to Florida are shrinking as companies including Phillips 66 and Valero Energy Corp. charter them to move oil to refineries in the East Coast and Canada.
Long-term charter rates for Jones Act tankers surged past $100,000 a day last year compared with an average of $56,000 a day in 2012, the report showed.
Companies from Kinder Morgan Energy Partners LP to Marathon Petroleum Corp. are working on projects that would supply Florida with more fuel.
Marathon, the third-largest U.S. refining company by market value, plans to boost gasoline shipments to Florida and foreign markets by 20,548 barrels a day after a dock expansion at its Garyville, Louisiana, refinery.
Kinder is evaluating a project that would add capacity to its 600,000-barrel-a-day Plantation Pipeline, which starts in Louisiana and ends in Washington, and a delivery point in Jacksonville, the company said on April 16.
The U.S. Environmental Protection Agency is also considering waiving Reid vapor pressure requirements for fuel sold in Florida during summer months, cutting the costs of making the product.
“We usually see a 10- to 12-cent bump in RVP gasoline in the summer,” Alonso said. “So that’s really going to help consumers a lot, and it should help supplies.”
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--With assistance from Brian K. Sullivan in Boston.