US Northeast faces potential energy crunch as rail begins to take off

Unused oil tank cars are pictured on the Western New York and Pennsylvania Railroad outside Hinsdale, New York on August 24, 2015. The picture was taken on August 24, 2015. Reuters/Lindsay Daddario/File photo

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NEW YORK, Sep 14 (Reuters) – Some trains carrying fuel components in the US northeast have been halted in preparation for a possible railroad shutdown in the coming days, two sources familiar with the situation said on Wednesday.

North East Coast states rely on railroad shipments to complement pipeline deliveries from the Gulf of America. The region is one of the nation’s biggest fuel consumers, with US Energy Information Administration (EIA) data showing heating oil and diesel inventories fell to their lowest levels in at least three decades in July.

Major Railroads Including the Union Pacific (UNP.N) and Berkshire Hathaway (BRKA.N) BNSF should reach a tentative agreement with three unions representing 60,000 workers before 12:01 am on Friday to avert the bandh.

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Two sources told Reuters on condition of anonymity that unit trains to the northeast carrying commodities including ethanol and crude oil have already stopped.

Norfolk Southern. A spokesman for the U.K. said that all railroads are preparing to cease operations the next day. (NSCN) who declined to comment further. Passenger rail operator Amtrak has already canceled all long-distance routes across the country as their trains largely run on freight lines outside the US Northeast. read more

According to EIA data, stocks of distillate across the country, which include heating oil and diesel, are at their lowest level since 2000.

The situation is more dire in New England and the mid-Atlantic states. In that region, from Maine to Maryland, stocks are at 16.6 million barrels, the lowest seasonality since the EIA began keeping data in 1990.

Fuel distributors typically have goods to last for several days and may also receive imports to market, but prices would be expected to increase in anticipation of potential shortages.

Some shippers, fearing shutdowns, have already stopped transporting hazardous materials across the United States, including fuel blending components.

“I already have companies limiting their production knowing it’s coming and now they have to face the music and stop,” says Tom Williamson, a railcar broker and owner of Transportation Consultants. Ltd., which manages more than 2,000 railcars.

He said he has been busy communicating with customers over the past few days who are starting to stop producing hazardous materials.

Due to the lack of pipelines, the Upper Northeast is more dependent on rail for shipments of crude oil, natural gas and fuel products than other regions. According to consultancy RBN Energy, New England receives most of the natural gas it uses to heat homes and light stoves by rail, making it vulnerable to stagnation.

“Over the past 20 years, the regional imbalance between where products are produced and where they are demanded has increased,” said Debnil Choudhury, US head of refining and marketing at S&P Global Commodity Insights. “This has increased the need to move products out of the (Northeast) Gulf Coast.”

The pipelines carrying fuel and natural gas from Texas and other oil and gas-producing states in the US South are already clogged, leaving little room to increase flow on the lines if shutdowns occur, Chowdhury said.

“All kinds of stuff is going to come to a halt,” said an executive familiar with the area’s rail operations, who asked anonymity. “It’s going to be brutal.”

In July, the governors of New England states wrote a letter to US Energy Secretary Jennifer Granholm warning them that the region was facing rising winter heating bills due to a lack of natural gas pipeline connectivity.

He also asked the Biden administration to suspend the Jones Act, which requires the delivery of LNG for at least a portion of the coming winter, to move goods between US ports that are made domestically. Ships and American crew are transported by crews.

In 2021, the six-state New England region received most of its power, or 46%, from natural gas, according to ISO New England, the region’s power grid operator. During the coldest winter days, the grid relies on oil to fuel a large percentage of electricity generation.

Nationwide, shippers are creating contingency plans for oil and chemical companies.

“We’re already starting to see the impact,” said Chris Ball, chief executive officer of the Houston-based company Quantix.

“They (the railroads) have already restricted what they’re carrying and so we’re getting a fair amount of trucking orders across our network,” Ball said.

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Reporting by Layla Kearney, Laura Sanicola and Jarrett Renshaw; Additional reporting by Arathi Somashekar in Houston and Scott DiSavino in New York; Editing by David Gregorio and Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principals.

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