Shortage Of Fuel In Iowa Signals Nationwide Supply Tightness

Tuesday, May 1st 2007, 5:32 pm
By: News On 6

DES MOINES, Iowa (AP) _ Refinery snags that left two Iowa storage facilities short of fuel over the weekend are a reminder of how tight the U.S. gasoline market has become and why average prices could soon top $3 a gallon, experts said Tuesday.

While the gasoline supply shortages in Iowa City and Fort Dodge were expected to be resolved by Tuesday night, the incident highlights how small the cushion of available gas supplies is as demand for motor fuels keeps rising just a few weeks before the start of the peak driving season.

Analysts say any further supply disruptions between now and the start of summer will likely cause U.S. pump prices, now around $2.97 a gallon for regular, to jump higher. Retail gasoline prices have climbed nearly 30 cents in the past month, while oil prices are hovering above $64 a barrel.

``We're in big trouble,'' said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. He noted that inventories stand at 194.2 million barrels _ or slightly above the levels reported in the days after Hurricane Katrina struck the Gulf Coast in 2005 _ and he predicted that that the average prices this summer will surpass the 2005 record of $3.06 a gallon.

To meet peak demand and have a comfortable cushion to offset disruptions, Flynn said gasoline inventories will need to rise to 210 million barrels by Memorial Day.

``There's a fear built into the market that there won't be enough gasoline for the summer driving season,'' said Eric Wittenauer, an energy futures analyst at A.G. Edwards & Sons in St. Louis.

Industry insiders are less worried.

Charlie Drevna, executive vice president of the National Petrochemical & Refiners Association described the Iowa shortages as isolated incidents that do not represent broad supply problems. ``We've got a pretty sophisticated supply and distribution system in this country,'' he said. ``We're pretty good at adapting and getting fuel to the areas where they need it.''

A series of refinery accidents and outages, including shutdowns in Texas, Indiana and Oklahoma, have contributed to the recent decline in gas supplies. The Energy Department released data last week showing an unexpected drop of 2.8 million barrels in nationwide gasoline stockpiles, as refinery utilization declined to roughly 88 percent of capacity.

Iowa is particularly susceptible to spot outages in times of shortage because it is at the edges of the nation's pipeline system.

The recent dearth of fuel was partly explained by a fire and explosion Friday that temporarily shut a 50,000-barrels-per-day Gary Williams Energy Corp. refinery in Wynnewood, Okla. Making matters worse was the idling of one of the nation's largest refineries, a 420,000-barrels-per-day BP plant in Indiana, cutting supplies throughout the Midwest.

``When there's not as much product refined and consumption rates are historically high, outages are going to pop up especially in the outer reaches of the pipeline systems,'' said Randy Lusby of Maryland-based Oil Price Information Service.

As a result of the weekend incident in Iowa, truckers were called in to drive to Illinois on Sunday to get gasoline before stations began running out, said Dawn Carlson, a spokeswoman for the Petroleum Marketers & Convenience Stores of Iowa.

``My recommendation,'' Carlson said, ``is that consumers do not panic or get too concerned. Any type of hoarding or topping off tanks will make matters worse.''

Bruce Heine, a spokesman for Magellan Midstream Partners, said the Iowa City and Fort Dodge storage facilities were expected to receive the gasoline they need by Tuesday night. But, he added, some other terminals in Iowa and Nebraska could experience temporary outages over the next couple of weeks. Magellan operates an 8,500-mile refined products pipeline system that includes 47 storage terminals.

The pipeline transports gasoline and diesel fuel from refineries in Oklahoma, Kansas, the Texas Gulf Coast region and from the Minneapolis area.

Lucian Pugliaresi, an analyst for the Energy Policy Research Foundation Inc., said that while the situation appears to be improving, ``a combination of a lot of different things have gone bad in the last couple of months.''

For example, a 170,000-barrels-per-day plant in McKee, Texas, is in the process of restarting after shutting down for a month and a 470,000 barrels-per-day plant in Texas City is operating at less than half capacity. And a ConocoPhillips' refinery in Sweeny, Texas, was partially shut down Saturday due to power outages.