Pipeline threats expose energy system’s fragility
CALGARY — A cyberattack that knocked out the main oil pipeline supplying the U.S. Eastern Seaboard comes days before a state-imposed deadline to shut a major Canadian conduit that could send prices soaring for consumers, highlighting the fragility of North America’s energy infrastructure.
“These recent events completely lift the hood on how vulnerable infrastructure is to attack now,” said Michael Tran, energy strategist at RBC Capital Markets in New York, adding the attack on the Colonial Pipeline Co. “was not just any pipeline” but “the key artery” supplying the most populated parts of the United States.
A ransomware attack Friday on the Colonial Pipeline, which ships gasoline, diesel and jet fuel from U.S. Gulf Coast refineries to consumers in 14 states on the U.S. East Coast, has forced the largest conduit of refined products in the U.S. to go offline.
Supplies of gasoline tightened further in parts of the United States on Tuesday as the shutdown of the nation’s biggest fuel pipeline by hackers entered its fifth day. In a statement on Monday, Colonial said it expects to “substantially” restore operational service by the end of the week.
The outage on the Colonial Pipeline could be exacerbated by a Michigan state order forcing Enbridge Inc.’s Line 5 pipeline — supplying oil to Michigan, Ohio, Ontario and Pennsylvania refineries — to shut down today, which could further strain U.S. oil supply. Calgary-based Enbridge has vowed to defy the order and continue shipping oil through the line until forced to close by a court. Analysts believe shutting down Line 5 could cause higher fuel and propane prices in affected areas in the U.S. Midwest and Central Canada as well as potentially thousands of layoffs.
Still, the potential for two major pipelines being shut down in the same week shows the stretched energy supply system in North America is increasingly vulnerable to outages, Tran said.
“At a minimum, you’re going to leave U.S. consumers, large swaths of the U.S. population, paying significantly more for fuel costs. Worst-case scenario, you’re essentially leaving widespread refined product shortages across some of the most highly populated pockets of the United States, being parts of the Midwest and the U.S. Northeast,” Tran said. “One is subject to a cyber attack, the other is potentially subject to a politically charge selfinflicted wound.”
The Colonial Pipeline moves refined products such as gasoline and diesel from refineries in Texas and Louisiana to supply 14 states in the U.S. East Coast. It moves 2.5 million barrels of oil products per day to North and South Carolina before shipping 900,000 bpd to New York and neighbouring areas.
“The importance of Colonial cannot be underplayed given that it is one of the few major sources of oil products deliverable into the refinery challenged East Coast (the line services 14 states). Due to poor refinery economics, regional units have shut over recent years, leaving the U.S. Northeast as the least independent and energy secure district in the country,” Tran said in a note to clients Monday.
Analysts believe the outage could send gasoline prices in the affected U.S. areas to more than US$3 per gallon and potentially result in fuel shortages. U.S. West Texas Intermediate remained at an elevated level for much of the day, but closed just 0.1 per cent higher to US$65 per barrel after suggestions that the crisis could be shortlived.
A top White House national security official said the U.S. intelligence community is working to determine whether the hackers of the Colonial Pipeline have ties to the Russian government. The FBI has accused Darkside, a group of cyberhackers, of a digital extortion attempt, but the group said it was ‘apolitical’ and its “goal is to make money, and not creating problems for society.”
Regardless of the motives, analysts think the hack marks a new era of security risk for oil markets.