Y2K - US Oil Pipelines

To Be Shutdown...

Despite Assurances

12-30-99

NEW YORK (Reuters) - Gasoline, heating oil and other fuel shipments will be idled for hours coast-to-coast on New Year's Eve, as U.S. pipeline companies take precautions for the Year 2000 transition despite assurances they're ready.

Echoing confidence voiced across the oil sector, all major pipeline firms, including Colonial, Buckeye, Explorer, Williams and Kinder Morgan, said their networks are Y2K compliant. But no one is taking chances in case customers are not as ready, or if power glitches or the unexpected occurs.

"There are a lot of variables out there that we are not sure about," Buckeye Pipeline Co. spokesman Roy Haase said.

"We are confident our system is ready for 2000, but we are tied to other firms and individuals. We don't want to take a risk where we don't have to, if they are not Y2K ready," he added, echoing remarks by the other pipeline firms.

According to the North American Electric Reliability Council, a few utilities are not ready for the roll but none of these problems were bad enough to cause outages.

Oil traders cited last minute "top-up" buying this week from refiners and other players who want to ensure they have enough to meet year-end demand. This prompted gains in distillate fuel prices in the Gulf Coast and New York.

However, few expect drastic consequences from the outages. If anything, short-term pressure on cash prices in some hubs is feared if Y2K turns out a non-event, as ample supply from weeks of stockpiling could be dumped onto spot markets.

"Even if it's widespread there will be enough inventories at terminals and further down the supply chain," said a trader covering the Gulf Coast, the nation's largest cash market.

The coast-to-coast stoppages are planned as follows:

-- The 700,000 barrels per day Houston-to-Chicago Explorer: 20 hours, starting 5:00 p.m. Eastern time (2200 GMT);

-- The 2.1-million bpd Houston-to-New York Colonial line: eight hours, 6:30 p.m. Eastern time (2330 GMT);

-- The 600,000 bpd Williams (from Oklahoma to Midwestern cities): several hours amid the roll, duration unspecified;

-- The one-million bpd Buckeye to the East coast: two hours, restart as of 1 a.m. Eastern time, a system at a time;

-- The one-million bpd Kinder Morgan serving western states: two hours, to restart 1 a.m. Pacific time.

But some oil analysts warn that bringing the lines back up may not be as easy as shutting them off.

Given it is winter and U.S. petroleum and product inventories are steadily dwindling due to global crude output cuts, any extended shutdowns of the pipelines could cause jitters in the world's leading energy-consuming nation.

Warburg Dillon Read analyst Scott Smith said recently it makes sense for pipeline grids to be shut during the transition since some traverse multiple power grids. But he warned of the possibility that such a "multiplier effect" could prompt disruptions for a couple of days instead of hours.

He said inland refiners may also be affected as they will prefer to stock up on crude rather than products, which will back up in the system if pipelines are not working. This may result in a squeeze on domestic crudes, spiking their prices.

"The refiners will not want to be constrained to have to slow down on production," Smith added.

-- matt (matt@somewhere.nz), December 31, 1999