Insight: After Sandy, Big Oil's pumps fail motorists

Reuters News
Posted: Nov 09, 2012 12:04 AM
Insight: After Sandy, Big Oil's pumps fail motorists

By Edward McAllister and David Sheppard

NEW YORK (Reuters) - As lines of fuming motorists snaked along the highways of New York and New Jersey last week in search of gasoline, a surprising trend emerged: those who rushed to stations bearing the names of the world's biggest and best known oil companies were the least likely to find fuel.

Three days after Sandy pummeled the Northeast, fewer than one-quarter of the service stations operating under the Exxon Mobil Corp., BP and Shell brands were selling gasoline, according to a Reuters analysis of industry data. The companies say the figures are higher, closer to half.

Meanwhile a handful of medium-sized regional chains like Hess Corp, Wawa Inc and Sunoco performed far better, with as many as three-quarters of their stations operating, using back-up generators to dispense fuel to motorists, homeowners and utility crews.

It came down to one critical factor: the outlets of the oil majors are franchised, while those of the regional chains are company-run and benefited from the full resources of their corporate parents.

In Sandy's wake, it quickly became clear that the vast power outages across the Northeast had exposed a largely unseen vulnerability in the fuel supply chain that left as much as three-quarters of the New York City area's 4,000-plus stations unable to dispense fuel from electric pumps.

The new Reuters analysis, based on data from leading retail intelligence firm OPIS, shows how hidden factors deepened the crisis.

Gas stations carrying the brands of the three big oil companies make up a third of the market in the New York City area, the data shows. Over the past decade they have been franchised out to individual operators who enjoy little support from the multibillion-dollar majors whose name they bear.

When Sandy hit, they were largely left stranded, with no easy means to hire the big generators needed to power fuel pumps. But at the regional chains, crisis teams swung into action, hiring dozens of units to get fuel flowing again.

"We have a detailed crisis plan, whether it be a big nor'easter or a hurricane," said John Poplawski, head of the emergency response team at Wawa, a regional convenience store and gasoline retailer.

Many franchise owners would not have been able to run back-up power easily anyway - they are not required by law to install the necessary plug-ins, a fact that came as news to New Jersey Governor Chris Christie.

The breakdown in supplies has prompted calls from lawmakers to introduce rules modeled on hurricane-prone Florida, where key gas stations are required to have access to back-up power within hours of a storm. The suggestion is already meeting with fierce resistance from industry groups, which say purchasing a $30,000 generator would inflict financial hardship on station owners and convenience stores, which on average earn just $45,000 a year.

To be sure, a lack of power at individual stations was by far not the only problem plaguing the fuel supply, with fuel terminals that supply the stations knocked offline and refineries shuttered.

Even New Jersey-based Hess Corp, which received praise from Christie for supplying rival stations with fuel after securing 85 generators before the storm, has been unable to re-open its own 70,000 barrel-per-day New Jersey refinery.

The fuel shortages have hampered recovery efforts and may come back to haunt the big companies, which risk reputational damage from frustrated motorists even if they are not to blame.

More than 10 days after Sandy, even with power restored and fuel moving again, long lines persisted at gas stations. New York City Mayor Michael Bloomberg ordered even-odd rationing on Thursday, following the path taken by New Jersey last week.


Behind the scenes, as much as a week before Sandy arrived, centrally managed emergency teams at some gasoline retailers were preparing, scouring weather maps for signs of where and when the storm might land.

Wawa, a Pennsylvania-based, independently owned company with 200 gasoline outlets in New Jersey and surrounding states, rushed to be ready.

Six days before Sandy struck, chief crisis manager Poplawski moved to secure 30 large-scale generators for Wawa's pumps and stores. They normally cost about $5,000 per week, but rental rates had already jumped 20 percent to around $6,000.

He eventually took 15 units, from as far afield as Ohio, Indiana and the Carolinas. Then rates surged as Sandy struck.

"We had offers to get more than 15 at double the rate, but we chose not to," Poplawski said. "Frankly, the business benefit gets outweighed at that point."

Wawa fared better than most after the storm. Many of its sites are in south New Jersey or inland, areas less affected by the storm; it also moved the units as power came back.

"We were going down the list. As one generator became available we would (move it) to the next store," Poplawski said.

By Friday, four days after Sandy came ashore, 95 of its 100 New Jersey fuel stores had been reopened, the company said.

Hess was more aggressive, sourcing 85 back-up generators before the storm hit, the company said. It had 177 of 186 of its stations in the area running again by November 2 because it was able to "execute hurricane preparedness plans across our retail network," the company said in a statement.

Chief Executive John Hess, a New Jersey native whose father founded the company and once owned the New York Jets, took the opportunity to laud his efforts on a conference call with analysts last week.

"Hess has had a long history of doing whatever it takes to meet the demand for energy during times of crises," he said.


At hundreds of Exxon Mobil's 500 branded stations in the region, a different story unfolded. Exxon Mobil, the world's largest publicly traded oil company, spun off the last of its retail division in 2008, licensing local operators to run their branded stores as franchises.

Few stations had generators, and most relied on utility companies to restore power, according to interviews with Exxon and Mobil station operators in the area. Many struggled to make contact with their local representative as phone lines failed.

"Mobil helps no one," said one Mobil station operator on Long Island, who asked not to be identified. "That's why they are the richest company in the world."

Only 46 branded Exxon or Mobil outlets in New Jersey were selling fuel on November 1, according to data from OPIS, which is based on fleet car sales and surveys and is used by the AAA motoring group to gauge daily gasoline prices nationwide. A week earlier, OPIS recorded sales from 285 stations.

On Monday, Exxon released a statement advising investors that it did "not own or operate any gas stations, fuel terminals or refineries in the impacted areas" of Sandy.

In response to queries about the data, an Exxon spokeswoman said that half of its New Jersey stations had power by November 1. Some stores may have had power for the pumps but not credit card sales, according to OPIS.

By this week, the problem had become more about distribution of fuel than about power, with more than one-fifth of the New York metropolitan area's stations unable to sell fuel because they were out of gasoline. It was not clear which brands were most affected.

"We are doing horrible," said an owner of a Mobil station in Long Island, which has only received two rationed deliveries since the storm. "We don't have any gas, we have long lines at the pump, even though people know that we don't have any gas, hoping that we get a delivery," he said, asking not to be named.

An Exxon spokeswoman said it recommends that franchise owners have access to generators, "but we can't mandate it."

The OPIS data showed that only just over 20 percent of the 138 BP-branded stations in New Jersey were selling gas by November 1, a figure broadly similar across the region.

Asked about the figures, a BP spokesman said two-thirds of its 300 stations in the "New York-New Jersey metro area" were open by November 1 and BP had been helping emergency services get fuel "to the best of our ability." By November 6, BP had only 11 stations still offline in the area, he said.

Oil majors did help their branded stations to varying degrees. Royal Dutch Shell shipped generators to be near its wholesalers before the storm, even though "this is not a part of our contractual agreements," a company spokeswoman said.

Still, by November 1, more than half of Shell's branded stations in New Jersey remained closed, the company said. On that day the OPIS survey found just 33 stations open compared with 234 the previous Thursday. By November 5 more than 15 percent of the company's New York state and New Jersey stations were still shut.


After a crisis so serious that the military was called in to give away 22 million gallons of fuel, politicians are preparing for legislative action.

"What we've witnessed during Sandy is that gas stations and terminals lose power it has the potential to bring us to a screeching halt," said New York State Senator David Carlucci.

He has proposed legislation requiring every key service station to permanently keep a generator on site.

A similar bill was passed in Florida after the state was struck by three hurricanes in 2005. That law requires every fuel outlet on a major trunk route to be able to hook up to reserve power within hours of a blackout, with big chains mandated to keep generators for their stores close by.

Yet even as motorists continue to steam in New York and New Jersey, gas station operators are balking at the cost of installing on-site generators that would allow them to keep operating even if power fails.

"Mandating the costly installation of equipment that will only be used maybe as little as once every several years is bad policy and bad for the economy," said John Eichberger of the National Association of Convenience Stores.

Carlucci's proposal, which includes tax incentives, would cost a total of about $200 million to provide each of New York State's 6,500 gas stations with a $30,000 generator, according to Reuters calculations. That equates to around $10 per head of New York State's population.

Pat Moricca, president of the Gasoline Retailers Association of Florida, who ran a Paterson, New Jersey, service station in the 1970s, called Sandy a wake-up call that should be heeded.

"Whether you're wet or dry, hot or cold, this storm has shown that anywhere can run into this situation eventually."

(Reporting By David Sheppard and Edward McAllister; Additional reporting by Selam Gebrekidan; Editing by Leslie Adler)