Home Business A looming rail strike complicates Biden’s options for avoiding a winter diesel supply crisis

A looming rail strike complicates Biden’s options for avoiding a winter diesel supply crisis

by SuperiorInvest
  • America is already facing a potential diesel supply crisis, particularly in the Northeast, due to a number of factors that have led to insufficient regional refining capacity to produce the most critical transportation fuel.
  • Now there is a threat that a possible strike by rail freight workers will complicate the situation at the worst possible time.
  • The two largest unions of freight rail transport split your votes on the latest compromise offered by the Biden administration on Monday, raising the prospect of a nationwide strike just as winter sets in across the country.
  • Such a strike could begin as early as Dec. 5 unless a compromise is reached or federal officials take steps to end such a work stoppage.
  • Historically, Congress has acted to prevent general railroad strikes that are against the national interest, but no one can be sure that today’s highly polarized, divided Congress would do the same.

In the United States, there is diesel fuel usually moved pipelines from refineries to central distribution centers. From there it is then moved by truck, boat or rail to retail stores or other market centers. Disrupting a significant part of the rail transportation equation would put severe pressure on other modes of fuel transportation and likely exacerbate shortages already looming in the Northeast and other parts of the country.

Supply and storage levels are already critically low in these areas for a variety of reasons, including heavy demand for diesel exports to Europe and reductions in refining capacity in the affected areas in recent years. Tim Stewart, president of the US Oil and Gas Association, told me in an email that much of this reduction in refining capacity can be attributed to government incentives that encourage refineries to convert to biofuels. “U.S. refining capacity has hit its lowest level in 8 years, a result of large government subsidies to shift to biofuels,” he said.

Jesse Mercer, Sr. director of Markets Macro Fundamentals at Enverus, points to various factors that have led to the shortage, noting that the crisis is most severe in the Northeast and that the timing could not be worse. “The US Northeast is the epicenter where diesel and fuel oil inventories are at their lowest level since mid-2014,” Mercer told me. “However, the last time North East stocks were this low was at the end of the heating oil demand season in 2014 and there was still time to replenish stocks before next season.

“This time we are seeing low inventory levels at the very beginning of the heating oil demand season,” he continued. “Keep in mind that East Coast supplies never fully recovered after the Russian-linked cyber attack that shut down the Colonial pipeline in 2021, and heavy maintenance at the Irving St. refinery. they will also contribute to restocking.”

Bloomberg’s Javier Blas points out that the loss of Northeast refining capacity in recent years plays a key role in the resulting shortage. “Over the past 15 years, the number of refineries on the US East Coast has halved to just seven. The shutdown has reduced the region’s oil processing capacity to just 818,000 barrels per day, down from 1.64 million barrels per day in 2009. But regional demand is stronger.”

This is of course key. It is a simple fact that the last large capacity greenfield refinery built in the US was in 1978, 44 years ago. Building a new one today would be at least a ten-year project requiring billions in new investment. As Stewart points out, “It doesn’t help that elected officials keep saying the refiners’ days are numbered. Refining is capital intensive and it’s hard to invest multi-billion dollars when governments are telling everyone they want you out of business.”

Dan Kish, a senior fellow at the Energy Research Institute, was even more blunt in an email he sent me: “When you’re waging a government-wide war on affordable energy like Biden is, higher prices are a feature of that policy. “He could encourage. Refinery in the Virgin Islands run, but instead his EPA forces him to apply for a PSD permit for a new source. It started when he ordered his interior minister undo the goal of American energy independence. Everything he does it makes the production, transport, processing and use of energy more expensive and difficult. He flushes the cherry bomb down the toilet and then acts surprised when it explodes.”

Mercer points out that the Biden administration has some options available, though they are limited and carry political risk. “There are some policy options available to the Biden administration,” Mercer told me. “For starters, there’s the Northeast Home Heating Oil Reserve (NEHHOR) with 1 MMbbl of ultra-low sulfur diesel for heating oil located at three locations in Massachusetts, New York and Connecticut. The president can declare a “severe energy disruption” due to the war in Ukraine and begin drawing on those supplies. Additionally, the Biden administration could help reduce the cost of shipping diesel and heating oil from the Gulf Coast to the East Coast by dropping some of the Jones Act restrictions.

However, if a general railroad strike were to be called, 1 MMbbl of low sulfur diesel would be used up in a matter of weeks. As for the Jones Act, the arcane Civil War-era law mandating that only US-flagged ships staffed by US personnel could carry cargo from one home port to another is now seen as a protector of union jobs, and so it is difficult for a democratic president to suspend it.

The president could also try to issue an executive order restricting US diesel exports to Europe and other international destinations, but such a move would be highly controversial and would undoubtedly upset international markets, likely leading to further inflationary price spikes. Energy Secretary Jennifer Granholm recently took a soft-glove approach during an interview Bloombergencouraging refineries to voluntarily curtail exports themselves.

“Maybe it’s not their business choice, but we as companies operating in America are asking them to do what they do in other countries,” Granholm insisted, noting that many importing countries adhere to minimum fuel consumption. storage requirements. “And that’s why the president is looking at it.

Taking all of these different factors into account, what America is cooking up right now with diesel supplies is a perfect storm of negative factors that are moving supplies and supplies of the fuel most used to transport all kinds of goods into a worst-case scenario of shortages. maybe the time of year. For the Biden administration, averting a general rail strike is just the first step in averting a very complicated looming crisis.

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