With other domestic sources largely off the table, imports are likely to play the largest role in bridging potential supply gaps. As local production diminishes, an increase in spot prices in New York Harbor, the East Coast's product hub, relative to other locations would be likely to incentivize additional gasoline shipments to the region. Some of this is likely to come from the East Coast's historical suppliers. But while Europe continues to produce more gasoline than it consumes, refining sector rationalization currently taking place on the Continent leaves some questions regarding Europe's long-term ability to increase gasoline shipments. Moreover, the closure of HOVENSA's St. Croix refinery eliminates a major historical supplier of gasoline to the East Coast. By eliminating a major source of imports from the Americas, this closure is likely to further lengthen the East Coast gasoline supply chain as product will have to come from farther afield. One likely source for significant volumes of incremental supply is India. With significant refinery capacity additions over the past few years, it looms increasingly large in global product markets and is already exporting about 40,000 bbl/d of gasoline to the U.S. East Coast. Additional volumes could come from refining capacity increases elsewhere in Asia, notably China.
From an offloading standpoint, current port infrastructure looks sufficient in aggregate, as East Coast gasoline imports through October were running about 260,000 bbl/d below their 2006 record level of 975,000 bbl/d. Some of the major ports seem to have more than enough room to bring in additional supplies. Newark, NJ, the largest East Coast port for gasoline, is currently bringing in roughly 75,000 bbl/d less gasoline than during its peak year. The second and third largest East Coast ports, Boston, MA and Perth Amboy, NJ, also are bringing in less than during recent years.
Greater Philadelphia is another matter, however, as are some of the other areas previously supplied by the three refineries targeted for closure, particularly western Pennsylvania and western New York. More supply may be needed in those areas than in the areas served by New York Harbor. In contrast with New York, the Philadelphia ports are better equipped to bring crude oil into the refineries than products to market. Importing products into these areas may be a challenge and could create the need for short-term market reconfigurations, such as longer distance trucking occurring higher in the supply chain.
The East Coast's increased reliance on imports would also occur against the backdrop of strong demand growth in emerging economies, notably South America. U.S. exports of gasoline have increased significantly over the past few years as U.S. refineries have taken advantage of those growing markets. Any demand pull from the East Coast will serve to tighten markets, which could more broadly support gasoline margins.