A weekend note from Goldman Sachs on the cyberattack on the gasoline and diesel US east coast distribution network
- disruption likely to be brief
- falling inventories to exacerbate the impact of future potential outages
- no physical damage to the pipeline and sufficient inventories, the bullish impact on East Coast fuel prices is likely to be transient
- yet declining inventories across commodities create risks of greater price impacts of such future potential disruptions
More:
- Colonial pipeline system carry up to 2.5 mb/d of refined products from the US Gulf Coast to the US Southeast and Northeast regions and accounts for 45% of the East Coast fuel supply
- only a long outage (likely more than 5 days) would materially tighten local supplies
- prior Colonial outages have shown, like in 2016, resupply is further likely to be rapid: (1) the Colonial pipeline was running below capacity so a resumption of flows at capacity would accelerate the restocking, (2) Kinder Morgan is working to accommodate additional barrels on its PPL line, (3) vessels from the USGC and EU can arrive in 7 to 14 days, while (4) the US administration could waive the Jones Act shipping restriction as well as summer gasoline requirements
- this attack illustrates the vulnerabilities of global energy infrastructure to such increasingly frequent attacks. While still depress demand and above average inventories are likely to limit the consumer impact from such events in the short-term, they could prove far more disruptive once global energy inventories fall below average levels later this year. Such outcomes could then lead to sharp price rallies, given the need to then destroy local demand, as recently previewed with the surges this year in JKM, com, lumber, steel prices and power prices during winter storm Uri.