The Northeast US faces potential power shortages as rails begin to close

Unused oil tanker cars appear on the New York West Pennsylvania Railroad outside Hinsdale, New York, August 24, 2015. Photo taken August 24, 2015. REUTERS/Lindsay Dedario/File Photo

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NEW YORK (Reuters) – Some trains carrying fuel components to the northeastern United States have been halted in preparation for a possible rail shutdown in the coming days, two sources familiar with the matter said on Wednesday.

North East Coast states rely on railroad shipments to supplement pipeline deliveries from the Gulf of the United States. The region is among the largest consumers of fuel in the country, with data from the US Energy Information Administration (EIA) showing that heating oil and diesel stocks in July reached their lowest levels in at least three decades.

Major railway lines, including Union Pacific (UNP.N) Berkshire Hathaway (BRKa.N) BNSF, it must reach an initial agreement with three unions representing 60,000 workers before 12:01 a.m. Friday to avoid a shutdown.

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

A Norfolk Southern spokesperson said all rail lines are preparing to end operations the next day (NSC.N) Who declined to comment further. Passenger train operator Amtrak has already canceled all long-distance routes across the country as its trains operate largely on freight lines outside the northeastern United States. Read more

Nationally, distillate stocks, which include heating oil and diesel, are at their lowest seasonally since 2000, according to Energy Information Administration data.

The situation is worse in New England and the Mid-Atlantic states. In that region, stretching from Maine to Maryland, stocks reached 16.6 million barrels, the lowest seasonal level since the EIA began holding data in 1990.

Fuel distributors usually have stocks lasting several days and those markets can also receive imports, but prices are expected to rise in anticipation of possible shortages.

Some shippers, anticipating the shutdown, have stopped transporting hazardous materials across the United States, including fuel mixing components.

“I already have companies that are limiting their production knowing this is coming, and now they are going to have to face the music and shut down,” said Tom Williamson, a railroad broker and owner of Transportation Consulting, which operates more than 2,000 carriages.

He said he has been busy in the past few days communicating with customers who have begun halting production of hazardous materials.

The Upper Northeast relies on rail for shipments of crude oil, natural gas, and fuel products more than other regions due to a lack of pipelines. New England receives most of the natural gas it uses to heat homes and light stoves by rail, according to consultancy RBN Energy, leaving it vulnerable to shutdowns.

“Over the past 20 years, regional imbalances between where products are produced and where they are ordered have increased,” said Debneel Chowdhury, Vice President, Head of Refining and Marketing for the Americas, S&P Global Commodity Insights. “This has increased the need to move products from the Gulf coast to (the northeast),” he added.

Chowdhury said pipelines carrying fuel and natural gas from Texas and other oil and gas-producing states in the southern United States are already full, leaving little scope for increased flows on the lines if a shutdown occurs.

“All sorts of things are going to stop,” said an executive familiar with rail operations in the area, who asked not to be named. “It would be brutal.”

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

They also asked the Biden administration to suspend the Jones Act, which requires the transportation of goods between US ports by locally built and US-crewed ships, to deliver LNG for at least part of the upcoming winter.

In 2021, the six-state New England region got most of its power, or 46%, from natural gas, according to ISO New England, the region’s power grid operator. On the coldest days of winter, the grid also relies on oil to supply a much larger percentage of power generation.

Nationally, shippers to oil and chemical companies are making contingency plans.

“We’re already starting to see the effects,” said Chris Paul, CEO of Quantix, a Houston-based company that provides trucks and trailers for transporting chemicals to companies including Exxon Mobil, Dow and LyondellBasell.

“(Railways) have really restricted what they get, so we’re getting a fair amount of trucking requests across our entire network,” Paul said.

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Additional reporting by Lila Kearney, Laura Sanicola, and Garrett Renshaw; Additional reporting by Arathi Sumasekhar in Houston and Scott DeSavino in New York. Editing by David Gregorio and Muralikumar Anantharaman

Our criteria: Thomson Reuters Trust Principles.

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