Colonial Pipeline shutdown could push gas prices higher

By: Ajay Pal Singh
Ajay Pal Singh
Ajay worked at Tata Motors in project planning before discovering his passion for stocks. Today, he lives in Canada… read more.
on May 11, 2021
  • Colonial pipeline supplies nearly half of the U.S. East Coast’s fuel supply.
  • The national average prices for gas stood at $2.985 per gallon on Tuesday.
  • The impacts will ramp up potentially exponentially after around day 5 or so.

Colonial Pipeline, the largest operator of fuel pipelines in the United States, came under a cyber attack that involved ransomware on Friday, forcing the company to temporarily shut down all pipeline operations.

The company said in a statement on Monday that it was working toward substantially restoring its operations by the weekend.

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“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,” the company said.

Why is Colonial Pipeline So Important

Colonial Pipeline spans a pipeline network of more than 5,500 miles and supplies nearly half of the U.S. East Coast’s fuel supply while transporting 2.5 million barrels per day of fuel including gasoline, diesel fuel, heating oil and jet fuel. 

The company reaches roughly 50 million Americans across 14 states and also provides fuel supplies to some major airports, air force bases and the army. 

So, the pipeline is a critical part of the U.S. energy infrastructure and any prolonged shutdowns could cause fuel shortages leading to higher spot prices for the various fuels and in turn, impacting businesses and people.

What Analysts are Saying

“Without this, there’s no transportation in the region, so it’s critical the pipeline return to service as soon as possible,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “The impacts will ramp up potentially exponentially after around day 5 or so,” he added.

“I think it’s just a duration question,” said Robert Thummel, managing director at TortoiseEcofin. “If it’s resolved within a couple of days you get back to normal, and prices normalize and trend back to correlating more with what crude oil prices do.”

The national average prices for gas stood at $2.985 per gallon on Tuesday, up 6 cents over the last week and just 3 cents shy of its highest levels since November 2014.

What we know versus what we don’t 

The company’s operations have been impacted by a ransomware attack which were serious enough to force the company to shut down all its pipeline operations over the weekend. Even though some services have been restored, the majority of the operations are still down. 

As of now, we don’t know how much money has been demanded or what power hackers may have over the pipeline operator as the company has still not revealed why it chose to completely shut down its operations last week. Investors have to take a wait and watch approach to understand the full impact and see whether the services are restored by the end of the week as the company stated in a recent statement. 

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