The northeastern United States faces potential energy shortages as railways begin to close

Unused oil tank wagons are pictured on the tracks of the Western New York & Pennsylvania Railroad outside Hinsdale, New York on August 24, 2015. Photo taken August 24, 2015. REUTERS / Lindsay DeDario / file Photo

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NEW YORK, Sept. 14 (Reuters) – Some trains carrying fuel components to the northeastern United States have been stopped in preparation for a possible railroad closure in the coming days, two sources familiar with the situation said.

The northernmost states on the east coast rely on rail shipments to supplement pipeline deliveries from the US Gulf. The region is among the nation’s largest fuel consumers, where data from the US Energy Information Administration (EIA) shows that fuel oil and diesel stocks reached their lowest levels in at least three decades in July.

Major railways, including Union Pacific (UNP.N) and Berkshire Hathaway’s BNSF (BRKa.N), must reach an interim agreement with three unions representing 60,000 workers by 12:01 am on Friday to avoid a closure.

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The trains of the units for the Northeast carrying goods including ethanol and crude oil have already stopped, two sources told Reuters on condition of anonymity.

All railways are preparing to close operations the next day, said a spokesman for Norfolk Southern (NSC.N) who declined to comment further. Passenger rail operator Amtrak has already canceled all long-distance routes nationwide as its trains mainly travel on freight lines outside the northeastern United States. Read more

Nationwide, distillate stocks, which include fuel oil and diesel, are at their lowest seasonally since 2000, according to EIA data.

The situation is most dramatic in New England and the Central Atlantic states. In that region, which stretches from Maine to Maryland, inventories stand at 16.6 million barrels, the lowest seasonal level since EIA began storing data in 1990.

Petrol stations generally have stocks that last several days, and those markets may also receive imports, but prices are expected to rise in anticipation of a possible shortage.

Some shippers, anticipating a shutdown, have already stopped transporting hazardous materials to the United States, including fuel blending components.

“I already have companies that have limited their production knowing it will come and now they will have to face the music and shut down,” said Tom Williamson, a railcar broker and owner of Transportation Consultants, which operates over 2,000 railcars.

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

The upper northeast relies on railroads 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 rail-mounted stoves, according to consultancy RBN Energy, making it vulnerable to an outage.

“Over the past 20 years, regional imbalances between where products are produced and where they are demanded have increased,” said Debnil 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).”

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

“All kinds of things will stop,” said an executive familiar with the region’s rail operations, who asked not to be named. “It will be brutal.”

In July, New England state governors wrote a letter to United States Secretary of Energy Jennifer Granholm warning her that the region faced a rise in winter heating bills due to a lack of natural pipeline connectivity.

They also asked the Biden administration to suspend the Jones Act, which requires that goods moved between US ports be transported by US-manned, in-house built ships, for LNG delivery for at least part of the coming winter.

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

Nationally, oil and chemical company shippers are making contingency plans.

“We are already starting to see the impacts,” said Chris Ball, CEO of Quantix, a Houston-based company that supplies chemical transport trucks and trailers to companies including Exxon Mobil, Dow and LyondellBasell.

“They (the railways) have already limited what they’re taking and so we’re getting a fair amount of freight orders across our entire network,” Ball said.

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Recommendations by Laila Kearney, Laura Sanicola and Jarrett Renshaw; Additional reports by Arathy Somasekhar in Houston and Scott DiSavino in New York; Editing by David Gregorio and Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.

Laura Sanicola

Thomson Reuters

Reports on oil and energy, including refineries, markets and renewable fuels. Previously he worked at Euromoney Institutional Investor and CNN.

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