EPA issues emergency fuel waiver in states hit by Colonial Pipeline shutdown

The Environmental Protection Agency issued a one-week emergency fuel waiver for select states impacted by the Colonial Pipeline closure that removes vapor pressure requirements for reformulated gasoline sold in areas of Maryland, Pennsylvania, Virginia and Washington, D.C.

The May 11 move from the EPA is designed to help supply more conventional gasoline in states where some gas stations are already running out of fuel. Panic buying has set in and refined products deliveries dropped in the aftermath of the May 7 cyberattack on the major fuel artery for the South and East Coast.

Colonial said it hopes to have the pipeline substantially back online by the end of the week as it restarts one segment at a time. Colonial updated late May 10 that the Line 4 segment of the pipeline from North Carolina to Maryland came back online -- at least temporarily -- and was being operated manually.

Related coverage

US weighs Jones Act waivers to move fuel up East Coast during Colonial shutdown

Colonial Pipeline outage highlights need for energy systems to be more cyber resilient: IEA

US pipelines wake up to cyberthreats after Colonial shutdown exposes vulnerabilities

Colonial had halted all pipeline operations because of a ransomware attack, restricting the primary artery for gasoline and refined products for much of the South and East Coast from delivering more than 100 million gal/d of fuels. Colonial stretches more than 5,500 miles from the Houston refining hub to New York Harbor, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.

US Energy Secretary Jennifer Granholm said May 11 she was informed by Colonial that they would be "in a position to make a full restart decision" by the end of May 12, but the actual restart would still take a few days. She said the East Coast "still may feel a supply crunch as Colonial fully resumes," and she urged Americans to avoid hoarding and price gouging.

"We know we have gasoline, we just have to get it to the right places," Granholm said. "That's why the next couple of days will be challenging. It's not that we have a gasoline shortage, it's that we have a supply crunch."

The EPA said the fuel waiver was granted through May 18 because "extreme and unusual fuel supply circumstances exist" and that it is imperative to help ensure an adequate supply of gasoline is available in the affected areas.

The waivers from the EPA are not necessary for the impacted Southern states because they operate in conventional fuel markets and do not require the cleaner-burning reformulated gasoline designed for cities with more smog issues.

The American Petroleum Institute applauded the waivers, but suggested EPA could also extend them to other Northeastern states, such as New Jersey and Delaware. Because the pipeline outage is creating large inventory builds by the refining hubs along the Texas Gulf Coast, API said waivers could also go to the Houston-Beaumont region to help consume more of the fuels where they are produced.

Gulf Coast CBOB differential was last heard done at NYMEX June RBOB future minus 14.25 cents/gal, 15 points below last close. There was muted activity on reformulated grades, likely because of the EPA.

As of 1200 GMT, about 8% of gas stations in Virginia, for instance, were already reporting fuel outages, according to GasBuddy. Gasoline demand nationwide surged by nearly 20% on May 10 as hoarding spiked amid the Colonial news, including by 40% in five impacted states -- Georgia, Florida, North Carolina, South Carolina and Virginia.

Virginia Gov. Ralph Northam declared a state of emergency on May 11 for any additional waivers needed within the commonwealth to expedite fuel deliveries.

The national average for a gallon of regular unleaded fuel hit $2.97/gal, matching the highest since 2018, said Patrick DeHaan, of GasBuddy.

Mansfield Energy, which supplies fuel to stations from Louisiana to Virginia, moved May 10 to code red or orange levels for its area, requiring customers to provide 48- to 72-hour notice for new deliveries. The company said oil prices are quiet, but drivers are rushing to fill their tanks in the Southeast, with some stations reporting demand 70% above average.

Federal oversight

Not only did the attack disrupt arguably the nation's most important fuel source, the incident also highlighted the particular vulnerability of the US' network of energy pipelines to cyberattacks.

Several politicians and two members of the Federal Regulatory Commission on May 10 called for mandatory pipeline cybersecurity standards similar to those required of the electricity sector. The pipeline sector currently only has voluntary cybersecurity guidelines set by the Transportation Security Administration.

"Simply encouraging pipelines to voluntarily adopt best practices is an inadequate response to the ever-increasing number and sophistication of malevolent cyber actors," said FERC Chairman Richard Glick in a statement, adding that Commissioner Allison Clements agreed.

But API said May 11 that it opposes such mandatory standards, especially if they are done in a knee-jerk response to a new attack about which much remains unknown. And cybersecurity legislation is difficult because the challenges and technologies are constantly evolving, API said, so anything would need to be smart and adaptable. These threats are economywide and the pipeline sector should not be singled out, API said.

Restarting, investigating

In its most recent update, Colonial said: "We can now report that Line 4, which runs from Greensboro, N.C., to Woodbine, Md., is operating under manual control for a limited period of time while existing inventory is available. As previously announced, while our main lines continue to be offline, some smaller lateral lines between terminals and delivery points are now operational as well."

The US Department of Energy is leading the federal response. The FBI confirmed that the DarkSide criminal group is responsible for the ransomware attack that compromised Colonial Pipeline.

On May 10, President Joe Biden noted the group is Russia-based, but he stopped short of blaming the government. "They have some responsibility to deal with this," Biden said, adding that he plans to meet with President Vladimir Putin soon.

The Colonial attack comes just as US fuel demand is quickly growing since bottoming out in January from the ongoing coronavirus pandemic.

Gasoline demand rose 78,000 b/d in February from January, according to monthly Department of Energy data. Using weekly DOE data, demand improved further by about 786,000 b/d for March over February, but growth slowed to 294,000 b/d in April, according to S&P Global Platts Analytics.