Florida residents could be in for another rude awakening as elevated gas prices may give the state's drivers headaches long after Hurricane Irma-induced flood waters retreat, according to commodities analysts.
"So far, the impact of Hurricane Irma on infrastructure in Florida has been less extensive than some predicted," Morningstar Inc. director of oil and products research Sandy Fielden wrote Wednesday in a research note. "However, our analysis indicates that the unique product supply dynamics in Florida will leave suppliers struggling to meet demand for some time, meaning higher spot gasoline prices for longer than the rest of the country."
The average price at the pump in Florida today is $2.718 per gallon, versus the average U.S. price of $2.653, according to GasBuddy.com, a website that tracks retail gasoline prices.
As most of Florida, with the exception of parts of the panhandle and northeast, are supplied with transport fuels, including gasoline, diesel and jet kerosene, by barge and tanker, largely coming from Gulf Coast ports, the impact of Hurricane Irma on Florida's refined product supply must be viewed in context of the damage done to Gulf Coast refining infrastructure by Hurricane Harvey, according to Morningstar's Fielden.
Hurricane Harvey decimated the Gulf Coast of Texas, shutting down 3.2 million barrels per day, or 34%, of U.S. crude oil refining capacity in a single week, only to be followed shortly after by Hurricane Irma, which then cut off the state of Florida completely from the majority of its fuel supply sources by shutting in various ports, fuel storage terminals and pipelines throughout the state and in the Caribbean.
As of Sept. 11, more than 3 million barrels per day of Gulf Coast refining capacity was still offline or restarting, and other refineries continue to run at reduced capacity, Fielden wrote.
The two major waterborne delivery ports into Florida are Tampa on the Gulf Coast and Port Everglades on the Atlantic Coast. About 156,000 barrels per day of refined petroleum product, including gasoline, jet fuel and marine diesel for cruise ships, come into Tampa, where the port has an estimate 3.8 million barrels of transport fuel storage capacity and multiple truck terminals feeding deliveries into northern and western Florida.
And in 2016, about 172,000 barrels per day of gasoline and 42,000 barrels per day of diesel came through Port Everglades, which has 12 fuel terminals with about 12 million barrels of storage capacity and delivers product bu truck to South Florida and much of the East Coast.
Coming into Hurricane Irma, Florida was already experiencing supply shortfalls due to Harvey: shipments of gasoline from Gulf Coast ports into Florida, which averaged 413,000 barrels per day between January and the first three weeks of August, according to Fielden's note, nosedived in the last week of August to 261,000 barrels per day during Harvey when Texas Gulf Coast ports were closed, preventing outbound shipments to Florida.
An increase in imports from overseas destinations -- from 37,000 barrels per day during the first three weeks of August to 117,000 barrels per day after Harvey -- partially offset the reduced Gulf Coast shipments. But those imports fell back to 36,000 barrels per day in the first week of September, while Gulf Coast shipments rebounded only slightly to 317,000 barrels per day.
"This suggests that Gulf Coast refineries still operating have struggled to supply Florida by barge since Harvey and that supplies of imports were also hard to come by last week," Fielden wrote. "Overall inbound marine shipments to Florida were down by about [100,000 barrels per day] in the week after Harvey struck and down [120,000 barrels per day] during the following week before Irma."
Then as Florida residents rushed to flee the state, gasoline purchases spiked, leading many gas stations to run out of fuel. According to GasBuddy.com, much of the state's gas station's were still without fuel to start this week.
Likely making matters worse was Hurricane Irma's path through the Caribbean, which forced one of Port Everglades most significant suppliers, Buckeye Energy Partners LP (BPL - Get Report) , to shut down its massive storage facility, Buckeye Bahamas Hub, in Freeport, Grand Bahama Island, along with several of its Florida terminals and pipeline systems.
In a statement emailed to TheStreet on Tuesday, a Buckeye Partners spokesman said Buckeye's goal was to return to normal operations in at its Bahamas Hub facility on Tuesday, while limited service at its Florida terminals and pipeline systems were expected within 12 to 48 hours.
Fortunately, both of Florida's major ports, were expected to reopen Tuesday, Sept. 12, which will result in rapid fuel resupply by barges and tankers waiting offshore to unload cargoes.
To assist with the resupply effort, the Department of Homeland Security issued a rare waiver to the 1920 Merchant Marine Act, also known as the Jones Act, which will allow foreign-flag vessels to deliver refined products into Texas and Florida from domestic East Coast and Gulf Coast ports for seven days.
But Fielden argued Wednesday that this waiver does not address the dilemma of where additional supplies might come from, pointing out that one possible supplier -- Atlantic Coast refineries -- are already running full out to make up the deficit from pipeline supplies to the Northeast and will only be able to offer limited help.
On the positive side, Goldman, Sachs & Co. analysts have estimated that Florida fuel demand will be temporarily reduced by 250,000 barrels per day in the wake of Hurricane Irma as evacuees are not consuming gasoline in Florida and the region's economic activity will be lower during the post-storm recovery.
"We agree that Florida demand will be much lower in the immediate aftermath of the storm but believe it will recover quickly," Morningstar's Fielden wrote. "The large-scale power outages affecting most of Florida mean that many gas stations cannot operate in any case. But as evacuees come home and fuel deliveries are resumed throughout the state, we expect driving demand to return to normal levels. In the next few weeks, utility and construction recovery efforts will increase demand for diesel fuel."
The result will be higher gas and diesel prices and continued shortages, according to Fielden, who noted that average gas prices were already up significantly from the $2.28 per gallon consumers were paying a month ago.
Ironically, the commodities analyst said that two defunct infrastructure projects proposed over the past few years might have eased Florida's vulnerable supply situation, including Kinder Morgan's (KMI - Get Report) Palmetto Pipeline project, which would have delivered 167,000 barrels a day of gasoline and diesel to Jacksonville, Fla., from Belton, S.C. but was abandoned in 2016 after resistance from Georgia.
"The competition to secure Florida supplies in a tight Gulf Coast market means those [fuel] price levels should continue for some time," Fielden said. "In the absence of any similar new infrastructure initiatives to reduce Florida's reliance on waterborne fuel supplies, the state will continue to be vulnerable to weather-related interruptions together with the associated price volatility."