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Some Colonial Pipeline laterals open but mainlines remain down

Highlights

Certain laterals can make deliveries from regional terminals

No set timeline for reopening main Colonial network

US DOT issues waivers to motor carriers of fuels

Houston — Colonial Pipeline said May 9 that it had reopened some smaller lines between terminals and delivery points, but that its main pipeline network remained down with no set timeline for restoration after a cybersecurity attack knocked the major US fuel artery offline two days prior.

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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 fuel and heating oil.

"The Colonial Pipeline operations team is developing a system restart plan. While our mainlines (Lines 1, 2, 3 and 4) remain offline, some smaller lateral lines between terminals and delivery points are now operational," Colonial said in a statement. "We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations."

RELATED: RBOB, ULSD rally as Colonial mainlines remain down

It was unclear when pipeline operations would be fully restored. Colonial stretches more than 5,500 miles from the Houston refining hub to the New York harbor, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.

"At this time, our primary focus continues to be the safe and efficient restoration of service to our pipeline system, while minimizing disruption to our customers and all those who rely on Colonial Pipeline," Colonial added.

Third-party cybersecurity experts and the federal government -- led by the US Department of Energy -- are leading an investigation into the nature and scope of the attack.

Speaking on CBS' "Face the Nation" show, US Commerce Secretary Gina Raimondo called it an "all-hands-on-deck effort."

"We are working closely with the company, state and local officials, to make sure that they get back up to normal operations as quickly as possible and there aren't disruptions in supply," Raimondo said.

However, with no set timeline for reopening in the immediate future, some disruptions may prove unavoidable.

The US Department of Transportation issued waivers May 9 for motor carriers of fuels in order to avoid supply disruptions. The DOT's Federal Motor Carrier Safety Administration is "issuing a temporary hours of service exemption that applies to those transporting gasoline, diesel, jet fuel and other refined petroleum products to Alabama, Arkansas, District of Columbia, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Virginia," the DOT said in a release.

With Colonial down, USGC refined products could be shipped by water to the USAC, although that would require the use of higher cost Jones Act vessels. Shippers can apply for Jones Act waivers to the DOT's Maritime Administration, which could not be reached for comment.

Pipelines 'hard to defend'

Leo Simonovich, head of industrial cybersecurity at Siemens Energy, said on Twitter that pipelines are "especially hard to defend."

"In general, legacy systems are often under-maintained, with digital merely bolted-on -- that makes them vulnerable," he said.

With an estimated 125 million electric vehicles expected to be on the road within the next decade, the "transportation transformation needs sufficient cyber measures taken to protect against hackers," he said.

According to John Cusimano, vice president of aeCyberSolutions, pipeline cybersecurity lags that of other energy industry sectors.

"A common gap in the pipeline industry is the lack of segmentation of the pipeline supervisory control and data acquisition (SCADA) networks, which are the networks that connect the pipeline control center to every terminal, pumping station, remote isolation valve, and tank farm along the pipeline," Cusimano said in emailed comments. "These are very large networks covering extensive distances but they are typically 'flat,' from a network segmentation standpoint. This means that once someone gains access to the SCADA network they have access to every device on the network."

"The other big challenge with securing pipeline SCADA networks is that they branch into every facility along hundreds of miles of pipeline," he said. "Some of those facilities are in very remote places with little to no physical security, meaning that if an attacker breached the security of one of those facilities they could gain access to the network."

NYMEX RBOB, ULSD rally

NYMEX RBOB and ULSD futures rallied on the open May 9 as Colonial's mainlines remained down.

NYMEX June RBOB rallied 5.57 cents to $2.1826/gal before slipping back to trade around $2.1629/gal at 2325 GMT, up 3.60 cents.

NYMEX June ULSD jumped 2.67 cents to $2.0373/gal before slipping back to trade around $2.0337/gal, up 2.31 cents.

USAC refined products inventories are roughly on par with seasonal averages, although with more drivers taking to the road as coronavirus restrictions ease in the US, gasoline inventories will likely soon tighten if supplies from Colonial are unavailable. Combined low and ultra low sulfur diesel stocks on the USAC at 39 million barrels the week ended April 30 were 7% below the five-year average, US Energy Information Administration data shows. USAC gasoline inventories at 64.6 million barrels were 3% below the average.

According to S&P Global Platts Analytics, if the pipeline remains down, inventories will reach 5-year lows by May 14.

However, if "consumers collectively decide to fill up their gas tanks due to fear of a shortage, it could cause a shortage," according to Analytics. "For example, if 30 million cars went from 50% full to 90% full, that could be 4 million barrels drawn from service station tanks who would then try to refill from their suppliers. Such panic buying was a factor in the consumer gasoline shortages with the 1973 and 1979 oil crises."

A long-term pipeline outage would likely open an arbitrage for waterborne imports, as the region is heavily dependent on the Colonial Pipeline for supply.

USAC imports jumped following weather-related Texas refinery outages in February, with 36.7 million barrels of refined products imported in March, up from 25 million barrels in February, Kpler vessel tracking software shows. Roughly 33.5 million barrels are expected to be imported in May so far, Kpler data shows.

An extended outage also has the potential to boost clean tanker rates and refined products prices overseas. The surge in waterborne imports boosted clean tanker rates following the February refinery outages. The UK Continent-USAC medium-range clean tanker market was assessed by Platts at Worldscale 125 May 7, down from w175 in mid-March.