CORRECTED -- An explosion in Alabama on what’s said to be the biggest fuel pipeline in the U.S. Monday will likely lead to a temporary price spike in diesel and gasoline in the Southeast states served by the pipeline and also may affect the Northeast.
The explosion in Shelby County, southwest of Birmingham, which killed one and injured at least five others, happened shortly after 2 p.m. Central time October 31. It was caused when a trackhoe being used by a contract crew working on Colonial’s gasoline pipeline hit the line, according to a statement from owner Colonial Pipeline. Gasoline was ignited and caused a fire, which sparked wildfires that burned more than 30 acres.
Colonial shut down its two mainlines, one of which carries gasoline and the other diesel.
The explosion was a few miles from the location of a September 9 leak that also resulted in the pipeline being shut down. The spill in September shut the line for 12 days.
With the news, gasoline and diesel futures spiked Tuesday morning. According to Tom Kloza with the Oil Price Information Service, around 10 a.m. Eastern time, gasoline prices were up between 5 cents and 12.5 cents east of the Rockies for gasoline, while diesel was up by 5 cents in most markets.
“But it’s still early,” he told HDT in an interview. “Everyone’s waiting to see if this is going to be down for five days, 10 days, 20 days or [longer.]”
Effects mostly will be felt in Georgia, Tennessee, the Carolinas and Virginia, and to some extent Alabama, Kloza said. The Northeast also will likely feel the effects, he said, although there are other options there for buying fuel.
“I always talk about how we have a great distribution system and terrific refineries,” Kloza said,” but it operates on a just in time basis, and when something happens to disrupt just-in-time distribution, it’s intolerable.”
Kloza noted that while of course it is a tragedy for those involved, in terms of a fuel price spike, “This is not an apocalyptic event. But it reminds everybody, there's a glut of crude but there’s never really a glut of gasoline and diesel” because of the just-in-time nature of refining in the U.S.
The longer the Colonial mainlines are offline, “the more upward pressure will be placed on U.S. East Coast fuel prices, while downward pressure will be exerted on U.S. Gulf Coast product prices,” Robert Campbell, head of oil products research at Energy Aspects Ltd. in New York, said in a note, according to Bloomberg.
Corrected 5:20 EDT 11/1 to correct date of explosion.