The U.S. Energy Information Administration released a report Friday that suggests storm clouds could be temporarily gathering above the Northeast's future supply of petroleum products.
Refineries in the Northeast are closing their doors, and as a result, more than 50 percent of the area's refining capacity will be reduced. The reduction is likely to be problematic for ultra-low-sulfur diesel, gasoline, heating oil and jet fuel supplies, according to the EIA's Friday report.
Three southern Pennsylvania refineries have been offered for sale and two have already been idled, EIA said.
In October, Sunoco announced it was going to sell its refineries located in Pennsylvania. That announcement was mirrored by ConocoPhillips announcing it was going to idle and sell its Trainer refinery, as well as its pipelines and terminals.
The sales and possible closures are being made because Sunoco wants to leave the refining industry, and because ConocoPhillips, citing market pressures, costly regulatory requirements and product imports, wants to reduce its refining portfolio.
According to the EIA, 40 percent of gasoline sales and 60 percent of petroleum distillate sales in 2010 came from East Coast refineries. Of those percentages, more than half came from the three refineries that are expected to be offline.
Once the refineries close, regional pipelines will not be able to significantly increase their shipments to the Northeast because of infrastructure limitations, the report said.
Even if pipeline infrastructure gets expanded in the region by mid 2012, pipeline capacity will still be insufficient to make up the entire lost production volume, according to the report.
As a result, prices are sure to rise. The difference between the price for current and future deliveries -- likely to come from the Gulf of Mexico or Midwestern refineries -- might become volatile, the report stated.
In the short term, the closure of the refineries could be a nasty blow to homeowners who rely on heating oil for winter in a region that is defined by the Department of Energy as vulnerable to supply disruptions.
In Massachusetts, Rep. Ed Markey decried the oil companies' decision to close their refineries. He was joined by Rep. Robert Brady from Pennsylvania and Rep. Henry Waxman from California.
EIA's report clearly shows the hardship that closing these refineries will cause to my constituents who rely on home heating oil to stay warm, Brady said.
Markey, who sits on the Natural Resources Committee, mirrored those sentiments, adding the company's decisions are profit driven.
As temperatures drop this winter, consumers in the Northeast shouldn't have to face price spikes for home heating oil, gasoline and other fuels created solely by oil companies deciding to shutter refining capacity, Markey said.