(Bloomberg) -- A gasoline delivery to New York is taking a cruise around Florida while extended pipeline repairs hinder the typical path north from Houston.
Friday’s shutdown of the 1.3 million-barrel-a-day Colonial Pipeline has changed the travel plans for the Ohio, a U.S.-flagged products tanker that normally hauls shipments to Florida from Gulf Coast refineries and storage terminals. On Saturday, the Ohio loaded refined products at Marathon’s Texas City, Texas, refinery with New York Harbor as its destination. Colonial, the nation’s largest distribution line, is resuming limited shipments after a spill in Alabama.
The nearly 100-year-old Jones Act requires that U.S.-flagged vessels carry shipments between U.S. ports. The vessels that can make such deliveries to New York from Houston are typically chartered at higher rates than those that cross from Europe and aren’t subject to the Jones Act, according to Bloomberg Intelligence analyst Gurpal Dosanjh in New York. Sometimes the quicker turnaround is worth the extra cost, he said.
“You’d be paying close to $4 a barrel to get from Houston over to New York,” Dosanjh said. “It’s $2 a barrel trans-Atlantic."
The premium of New York gasoline to Houston is enough to justify that cost. Conventional unfinished gasoline in New York Harbor strengthened Tuesday to 9.75 cents over Houston, the widest in four months. That’s enough to justify $4 a barrel, or 9.5 cents a gallon, in shipping costs. Colonial charges 5 cents a gallon to use its pipeline.
Colonial said it expects to restart Line 1 this weekend. Limited shipments have resumed upstream and downstream of the spill segment west of Pelham, Alabama. The company is also using Line 2, which normally hauls diesel, to move gasoline, and will continue to do so if the restart is delayed beyond this weekend.
"I’d imagine that they’re absolutely pulling out all the stops to get it running again," said Sandy Fielden, director of commodities and energy research at Morningstar Inc. in Austin, Texas.