Florida's Fuel Supply Dilemma

Despite declining consumption, Florida gas prices rise in structural supply crunch

Published in CSP Daily News

WASHINGTON -- While the law of supply and demand suggests that falling demand will inevitably lower prices, the state of Florida is proving that the relationship is far more nuanced, according to a recent Energy Information Administration (EIA) analysis.

Since 2007, gasoline consumption in Florida has dropped by 90,000 barrels per day to reach an average of 465,000 bpd in 2013, said EIA. Meanwhile, imports fell from an average of 170,000 bpd in 2007 to only 31,000 bpd in 2013. While a refinery on St. Croix and in Aruba formerly supplied Florida with much of its gasoline, both of the refineries are currently idle, shifting the burden to refineries on the U.S. Gulf Coast (USGC).

Here is where the supply crunch comes in. Florida is not connected to the USGC refineries by pipeline, but rather via a small fleet of coastwise-compliant tankers and barges, which dock in several ports, including Tampa, Port Everglades, Port Canaveral and Jacksonville, EIA said. From there, tanker trucks deliver fuel to local markets; however, more of this small waterborne cargo fleet is being diverted to move crude oil production along the Louisiana and Texas coasts, leaving fewer vessels to supply Florida.

This, in turn, has trimmed Florida's spot cargoes of gasoline, or shipments without a buyer locked into a long-term purchase contract, said EIA; therefore, more gasoline is coming from shipments contractually obligated on a long-term basis, which have chartered coastwise-compliant vessels, reducing the availability of wholesale gasoline without contractual agreements to meet demand fluctuations.

The result: Gasoline supplies in Florida are tight and prices have grown vs. other cities in the lower Atlantic region. For example, retail prices for regular gasoline in Miami have averaged at times 40 cents per gallon higher than in Houston, and that spread widened even more at points during the recent winter.

As GasBuddy.com recently reported, unbranded retailers in particular are feeling the pinch, with closed stations and fuel outages in some cases.

"The increases in Florida's prices reflect its need to compete for spot cargoes in the Atlantic Basin," EIA said. "Given limited vessel capacity to supply more gasoline to Florida from the USGC and the closure of Caribbean refineries, Florida must now compete with New York Harbor for the available cargoes from Europe and other Atlantic Basin sources."