Valero Says Pipeline Blocking Bid to Ship More Fuel After Harvey

(Bloomberg) -- The biggest independent refiner in the U.S. says the operator of the nation’s largest gasoline pipeline is blocking its efforts to supply more fuel to the East Coast in the aftermath of Hurricane Harvey.

Two of Valero Energy Corp.’s Gulf Coast refineries kept operating throughout the storm, churning out gasoline. After the U.S. government waived fuel specifications, allowing refiners to ship winter-grade gasoline two weeks early to ease supply shortages while flooded refineries recover, Valero was ready to ship more fuel. The problem, according to a letter from Valero to Texas Governor Greg Abbott obtained by Bloomberg: Colonial Pipeline Co. won’t accept the extra barrels.

“Valero is nearing containment and is having to hold the refineries at reduced rates or potentially even shutdown,” according to the letter. “Valero cannot get Colonial to take product.”

Panic at the pump is spreading across the country just as the long Labor Day weekend sets in, boosting the nationwide average price for regular gasoline at the pump by 7 cents a gallon Thursday to $2.519, the steepest single-day increase in a decade, AAA data show. Valero started telling its customers that sell fuels to gas stations Wednesday that it can’t meet its contractual supply agreements.

The Environmental Protection Agency on Thursday expanded fuel waivers that allow winter-grade gasoline, normally not allowed to be used until mid-September, to be released to the market now to help ease shortages caused by massive refinery shutdowns along the Gulf Coast. Colonial told its shippers Thursday that it will start taking the fuel, which is less expensive to make because of its higher Reid vapor pressure, but only if the shipper’s customers says they’ll accept that quality.

“The supplier of the product would need to get approval from the customer who is receiving the product,” said Malesia Dunn, a Colonial spokeswoman, by telephone. Then “nominations can be changed to the correct product.”

Governor Abbott’s press office didn’t immediately respond to email or phone requests for comment.

The company is operating its pipeline at reduced rates east of Lake Charles, Louisiana, while the western portion in Texas is shut. Operations at Houston-area terminals are expected to return on Sunday, and then Colonial can by-pass waterlogged stations in between to get supplies to the East Coast.

On Wednesday Valero told its East Coast customers that it would stop supplying customers that don’t carry its logo at all northeast terminals from Pennsylvania up to Maine, according to a customer who asked not to be named because the information isn’t public. Early Friday, Valero said it was limiting branded fuel to customers in San Antonio and Austin, Texas.

“We believe this to be an unreasonable precondition given the situation in Houston,” Valero said in its letter to Governor Abbott. “This is effectively precluding us from providing fuel.”

To contact the reporters on this story: Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net, Laura Blewitt in Houston at lblewitt@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Jon Morgan at jmorgan97@bloomberg.net, Mike Jeffers