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Why gasoline could be in short supply this summer on East Coast

If Sunoco shutters a big oil refinery in Pennsylvania, gasoline to make up for the lost supply will need to be shipped to the East Coast from the Gulf coast or from Europe – and it will be a logistical nightmare to get it there.

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"We are challenged in the short term to make sure we get fuel to those regions," agrees Jack Gerard, president of the American Petroleum Institute, the lobbying arm of the US oil industry.

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The problem can be traced to refineries' added expenses due to "a blizzard of regulations" from the Obama administration that require the industry to make cleaner and cleaner fuel, says Mr. Gerard.

Lynn Elsenhans, Sunoco's chief executive officer, said in a February letter to a Pennsylvania state legislator that the firm had lost $900 million in the past three years on its Northeast refineries. "Our view is that the difficult conditions that led to these substantial losses will continue over the next several years," she wrote.

One of those conditions is falling demand for gas. Demand is down in the Un­ited States 5 to 7 percent this spring compared with a year ago. As a result, refineries in the Gulf of Mexico have lots of spare capacity and are now exporting 600,000 barrels of gasoline per day. In her letter, Ms. Elsenhans wrote that demand is expected to fall 16 percent "over the next few years."

Demand is falling in part because US consumers are driving less, a consequence of both a slack economy and high prices at the pump. And when they do drive, their vehicles are using less gas. The US government has mandated that the vehicle fleet achieve an average mileage standard of 34.1 miles per gallon by 2016, and those gas-sipping vehicles are already showing up in dealer showrooms. The new mileage standard alone is expected to cut gasoline demand by another 13 percent – equal to the output of 18 refineries – within the next decade, says Elsenhans.

After this summer, the logistics of supplying gasoline to the East Coast will get easier. By 2013, the Colonial Pipeline, which connects Gulf refineries with East Coast markets, will expand by 100,000 barrels a day, a 10 percent boost in capacity. An expansion of another pipeline that carries distillate (heating oil and diesel) should be finished by mid-2012.

Mr. Kloza, the OPIS publisher, notes that there is no shortage of gasoline. One way to expedite barge shipments of gasoline to the East Coast, he suggests, would be for the Obama administration to waive the Jones Act, which requires all goods moving between US ports to be on US-flagged, US-built ships crewed by US citizens. That would allow foreign-flagged tankers to help move gasoline.

The White House had no comment about whether it has a plan to relieve a possible gasoline shortage in the East.

Sunoco, for its part, says on its website that it has taken steps to "ensure the reliability" of supply. But, it adds, it will take the entire industry to solve the problem.

As for Sunoco's large refinery, Mr. Cohan expects someone will buy it. "Its key value is storage capacity and access to domestic markets," he says. "They just have to think creatively about these units."

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