Growing domestic production of oil and gas has led to reduced refining capacity in the Northeast, increasing the reliance on fuel sent from Texas.
HOUSTON — The operator of a vital fuel pipeline stretching from Texas to New Jersey, shut down for days after a ransomware attack, said Monday that it hoped to restore most operations by the end of the week.
Federal investigators said the attackers aimed at poorly protected corporate data rather than directly taking control of the pipeline, which carries nearly one-half of the motor and aviation fuels consumed in the Northeast and much of the South.
The operator, Colonial Pipeline, stopped shipments apparently as a precaution to prevent the hackers from doing anything further, like turning off or damaging the system itself in the event they had stolen highly sensitive information from corporate computers.
Colonial said it was reviving service of segments of the pipeline “in a stepwise fashion” in consultation with the Energy Department. It said the goal of its plan was “substantially restoring operational service by the end of the week.” The company cautioned, however, that “this situation remains fluid and continues to evolve.”
The attack, which the Federal Bureau of Investigation said was carried out by an organized crime group called DarkSide, has highlighted the vulnerability of the American energy system.
Part of that vulnerability reflects Texas’ increased role in meeting domestic demand for oil and gas over the last decade and a half, leading the Northeast to rely on an aging pipeline system to bring in fuel rather than refining imported fuel locally.
Since the pipeline shutdown, there have been no long lines at gasoline stations, and because many traders expected the interruption to be brief, the market reaction was muted. Nationwide, the price of regular gasoline climbed by only half a cent to $2.97 on Monday from Sunday, even though the company could not set a timetable for restarting the pipeline. New York State prices remained stable at $3 a gallon, according to the AAA motor club.
“Potentially it will be inconvenient,” said Ed Hirs, an energy economist at the University of Houston. “But it’s not a big deal because there is storage in the Northeast and all the big oil and gas companies can redirect seaborne cargoes of refined product when it is required.”
What is the Colonial Pipeline?
The Colonial Pipeline is based in Alpharetta, Ga., and is one of the largest in the United States. It can carry roughly three million barrels of fuel a day over 5,500 miles from Houston to New York. It serves most of the Southern states, and branches from the Atlantic Coast to Tennessee.
Some of the biggest oil companies, including Phillips Petroleum, Sinclair Pipeline and Continental Oil, joined to begin construction of the pipeline in 1961. It was a time of rapid growth in highway driving and long-distance air travel. Today Colonial Pipeline, which is private, is owned by Royal Dutch Shell, Koch Industries and several foreign and domestic investment firms.
It is particularly vital to the functioning of many Eastern U.S. airports, which typically hold inventories sufficient for only three to five days of operations.
Why is the Atlantic Coast so dependent on one pipeline?
There are many reasons, including regulatory restrictions on pipeline construction that go back nearly a century. There are also restrictions on the use of foreign vessels to move products between American ports, as well as on road transport of fuels.
But the main reason comes closer to home. Over the last two decades, at least six refineries have gone out of business in New Jersey, Pennsylvania and Virginia, reducing the amount of the crude oil processed into fuels in the region by more than half, from 1,549,000 to 715,000 barrels weekly.
“Those refineries just couldn’t make money,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.
The reason for their decline is the “energy independence” that has been a White House goal since the Nixon administration. As shale exploration and production boomed beginning around 2005, refineries on the Gulf Coast had easy access to natural gas and oil produced in Texas.
That gave them an enormous competitive advantage over the East Coast refineries that imported oil from abroad or by rail from North Dakota once the shale boom there took off. As the local refineries shut their doors, the Colonial Pipeline became increasingly important as a conduit from Texas and Louisiana refineries.
The Midwest has its own pipelines from the Gulf Coast, but while the East Coast closed refineries, the Midwest has opened a few new plants and expanded others to process Canadian oil, much from the Alberta oil sands, over the last 20 years. California and the Pacific Northwest have sufficient refineries to process crude produced in California and Alaska, as well as South America.
How serious is the immediate problem?
Not very. The Northeast supply system is flexible and resilient.
Many hurricanes have damaged pipelines and refineries on the Gulf Coast in the past, and the East Coast was able to manage. The federal government stores millions of gallons of crude oil and refined products for emergencies. Refineries can import oil from Europe, Canada and South America, although trans-Atlantic cargo can take as much as two weeks to arrive.
When Hurricane Harvey hit Texas in 2017, damaging refineries, Colonial Pipeline shipments to the Northeast were suspended for nearly two weeks. Gasoline prices at New York Harbor quickly climbed more than 25 percent, and the added costs were passed on to motorists. Prices took over a month to return to previous levels.
What is the larger threat?
The hacking of a major pipeline, while not a major problem for motorists, is a sign of the times. Criminal groups and even nations can threaten power lines, personal information and even banks.
The group responsible for the pipeline attack, DarkSide, typically locks up its victims’ data using encryption, and threatens to release the data unless a ransom is paid. Colonial Pipeline has not said whether it has paid or intends to pay a ransom.
“The unfortunate truth is that infrastructure today is so vulnerable that just about anyone who wants to get in can get in,” said Dan Schiappa, chief product officer of Sophos, a British security software and hardware company. “Infrastructure is an easy — and lucrative — target for attackers.”
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