Sandy Also Could Wreak Havoc With Oil Refineries

In addition to all the other damage it is causing, Hurricane Sandy could take a substantial toll on the oil industry.

Sandy Also Could Wreak Havoc With Oil Refineries

Here's a rundown of what could happen:

By 6 pm ET Sunday both the Delaware Bay and New York Harbor will be closed to tanker and barge traffic. This means that the refineries will no longer be able to receive crude oil or load out product.

Product outages can occur not only in the New York and Philadelphia metro areas but extend to Bridgeport, New Haven, Providence and Boston.

As this is written, all five refineries are operating. I expect that they will have to reduce crude processing rates by 40 percent in order to make it through until crude oil resupply resumes.

My guess is that tankers will be able to resume deliveries late Wednesday, but most likely Thursday. My impression is that at this moment the refineries are going to continue and operate through the storm. (Read More: Frankenstorm Poses 'Worst Case Scenario')

The biggest concern I have is flooding at Phillips66 Linden refinery as it is currently on the "dirty" side of the storm which would experience the greatest storm surge.

I have divided the refineries into the Philadelphia area and the New York area.

Philadelphia Area Refineries

PBF, Delaware City, 190,000 barrels per day

Monroe Fuels, (Delta) Trainer, 185,000

Sunoco, Philadelphia, 355,000

PBF, Paulsboro, 166,000

New York Area Refinery

Phillips66, Linden, 251,000

These five refineries represent 6.6 percent of the nation's refining capacity. All figures from the EIA Refinery Capacity Report in barrels per stream day (which means how much crude a refinery can process in a 24-hour period).

I estimate these five refineries produce nearly 600,000 barrels per day gasoline, 75,000 of jet fuel and 350,000 of distillate fuel.

The four refineries in Philadelphia produce 450,000 barrels per day gasoline, 50,000 jet fuel and 265,000 distillate

The one refinery in New York produces about 145,000 barrels per day gasoline, 25,000 jet fuel and 85,000 distillate.

Total East Coast gasoline demand is about 3.1 million barrels per day as follows: New England: 400 thousand barrels per day which is Connecticut up to Maine; Mid Atlantic: 1.2 million barrels per day which is New York south to Washington, D.C.; and Lower Atlantic: 1.5 million barrels per day, which is Virginia south through Florida. I am estimating that we could lose 2 million barrels of gasoline demand. (Read More: Here's Why Sandy Is Such a Monster Storm)

Another issue: Nearly all gasoline sold contains 10 percent ethanol.

Most of the ethanol is delivered by rail to places like Linden and Sewaren, N.J., while some is delivered by barge from Albany, N.Y. (which receives rail shipments from the Midwest.

If the rails shut down (Norfolk Southern, Conrail, CSX) this part of the fuel supply chain will be impacted.

Bottom line — if we run out of ethanol we run out of gasoline.

Already 3,200 flights have been cancelled for Sunday into Monday and a look at the United and American Airlines websites show cancellations through Tuesday into/out of the NY airports. Jet Fuel demand at the three New York-area plus one Philadelphia airports is estimated at 170,000 barrels per day.

Andrew Lipow is president of Lipow Oil Associates in Houston.