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Sustained cold weather in US impacts petroleum markets

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), sustained cold weather in the US throughout the course of January and February has greatly challenged the ability of energy infrastructure to deliver fuel.

Increased demand for space heating fuels

Cold temperatures caused space heating demand for distillate, propane and natural gas to increase significantly. Limited gas supplies and pipeline capacity available to serve parts of the Northeast, particularly New England, were used to meet space heating needs for which no alternative fuel option was available.

Increased residual fuel consumption

US residual fuel consumption, which averaged 220 000 bpd during December and early January, more than doubled to 471 000 bpd for the week ending 17th January.

US distillate consumption also rose sharply to 4.5 million bpd for the week ending 24th January, an increase of 22% on the same week last year, and a 50% increase from the week ending 3rd January.

The EIA outlines that these increases have been largely due to an increase in residual fuel and distillate use by energy generators, as natural gas supply to power plants has been curtailed.

Since 24th January, as temperatures have moderated, consumption has declined again, averaging 3.7 million bpd over the three week period ending 14th February.

Distillate inventories decrease

As a result of increased consumption, distillate inventories in the Northeast have fallen 6.4 million bbls below inventory levels for the same week in 2013, leaving stocks at 18.8 million bbls on 14th February.

Imports of distillate fuels to the Northeast have also been notably higher in recent weeks. Trade press reports estimate that 6.6 million bbls of distillate from Russia, India and Europe, would reach New York Harbor by the end of February.

Reduced refinery runs

The extreme cold temperatures also caused refineries to reduce runs and in some cases suspend operations due to power outages and compromised unit efficiency.

In the Midwest, where refinery utilisation rates had been running above 94%, rates dipped to 87% for the week ending 17th January, but returned to 94% the following week.

East Coast weekly refinery utilisation rates declined 85% at the start of January to a low of 70%, also for the week ending 17th January, a decline that is also partially the result of planned refinery maintenance, before recovering to 77% by the end of the month.

Rising costs for refiners

One of the secondary effects of the cold weather for refiners is the significant increase in the cost of natural gas. On 22nd January, natural gas spot prices in the Transco Zone 6 reached US$ 124/ million Btu, up from US$11/million Btu one day earlier.

As natural gas prices increased, refineries have been forced to switch fuels or reduce operating rates.

Natural gas prices have now declined and as of 21st February were US$ 8.66/million Btu.

Transportation disruptions

Cold weather also impeded transportation networks. In the upper Midwest, the cold and snow caused significant operational challenges for railroads, while in New York Harbor, the snow and ice delayed vessel unloading. Tanker truck traffic was also disrupted, delaying propane and petroleum product deliveries.

In the Midwest, where temperatures were well below zero, ethanol pipelines froze.

EIA outlook

Although temperatures have now moderated throughout much of the US the National Oceanic and Atmospheric Administration (NOAA) anticipates a return to much colder than normal conditions for early March. As a result, the EIA holds that the possibility remains that cold temperatures will continue to negatively affect petroleum markets in coming weeks.

Adapted from a press release by Emma McAleavey.

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