The ransomware attack on Colonial Pipeline Co. might have ripple effects that last for weeks or months.
The ransomware attack on the East Coast’s biggest fuel pipeline could ripple across the economy for months, experts say, even if fuel starts flowing again soon. Panic buying is already pushing up gasoline prices even before the summer driving season begins, and airlines may have to get creative to avoid flight cancellations.
Colonial Pipeline Co.’s 5,500-mile Texas-to-New-York conduit has been shut down since a ransomware attack hit the company on Friday. This route carries about 45 percent of the East Coast’s fuel supply–about 100 million combined gallons of petroleum, diesel, and jet fuel per month. While Colonial says it hopes to restore most operations by the weekend, that might be too late to avoid cascading consequences.
The main issue is that fuel moves slowly through pipelines–about 100 miles per day, according to Jeff Lenard, vice president of strategic industry initiatives at the National Association of Convenience Stores. So getting it flowing today wouldn’t mean supply immediately returns to normal.
“I like to tell people: If you want to see how long it takes to get fuel from Houston to New York, walk from Houston to New York,” says Lenard. “It takes a couple of weeks.”
Many gas stations have experienced surges of two to three times the usual demand since news of the attack hit, says Lenard. “People are filling up their tanks, not necessarily because they’re going to be driving, but because they want a full tank,” he says. “Consumers are going out and they’re all buying today. The system’s not equipped to handle that.”
As such, gas prices have ticked up several cents to an average of $2.98 per gallon, the highest in the U.S. since 2014, says Lenard. That could affect everything from everyday commuting to services like ride-hailing and food delivery.
Lenard notes that if the gas supply starts to dwindle even further, independently-owned stations will feel the pain first, since those owned by large fuel companies will get priority. “After hurricanes in years past, you’d often see the gas station literally named Lowest Price in Town have the highest price,” he says.
The bright side, says Lenard, is that demand for gasoline in early May was about 10 percent lower than in 2019, thanks to the fact that people are commuting and traveling less in the wake of Covid-19. But Memorial Day weekend signals the start of summer drive season, when more cars tend to be on the road. If the shutdown stretches longer than expected, so will the problems.
One industry expert told Inc. that the East Coast could run out of gasoline sometime beginning late next week. But not the entire East Coast–the New York and New England areas can be resupplied by tankers, and those ships are already heading here. Maryland through Georgia, however, could face supply interruptions.
“We’re seeing a drastic reduction on the supply side combined with the drastic increase in the demand side,” says Yury Dvorkin, assistant professor of electrical and computer engineering at New York University, whose research focuses on energy and grid systems. “There is no way the short-term demand is going to be satisfied with the supply, and as a result the prices for gasoline are going to go up.” He cautions that markets often take weeks to adapt to disruption.
The attack, which the FBI said is the work of an Eastern European-based hacker group known as DarkSide, was especially well-executed, says Dvorkin. Colonial was able to quickly identify that there was an abnormality in its system, but the company wasn’t able to pinpoint the location of the problem and surgically remove it. That meant Colonial needed to shut down its entire network to prevent further damage.
Still, Dvorkin says Colonial’s decision not to pay the ransom is the right move. “As soon as you open up the piggy bank, they will keep coming at you,” he says, adding that the U.S. needs “a massive investment in our cyber-physical infrastructure to deal with these kind of eventualities and protect us against attack.”
Dvorkin says the shutdown could have a distorted impact because the economy is not operating normally. “Many people still don’t feel comfortable using public transportation,” he says. “That includes airlines, which are already in stress, so the particular timing of this attack is very disturbing.”
Robert W. Mann, Jr., an airline industry analyst and former airline executive, says major airlines generally haven’t been affected so far. Most airports have four to five days’ worth of fuel on hand–and with fewer flights these days, they can probably stretch that to six or seven days.
But if the issue isn’t resolved as soon as Colonial hopes, it could lead to flight cancellations and consolidations. Airlines might have to devise workarounds by filling West Coast-to-East flights with as much fuel as possible and redistributing the excess fuel after landing. “It’s a procedure that airlines studiously avoid in normal times,” given that it’s both economically inefficient and time-consuming, says Mann. “I don’t think they’ll have to start thinking about that until Thursday or Friday.”
Most air travel today is leisure-based as opposed to business, and leisure travel is especially sensitive to price changes, so Mann doesn’t expect airlines to increase ticket prices. The only way he sees that changing is if the shutdown lasts for longer than expected.
“If the pipeline is not restored in a few weeks,” he says, “you’re going to have lots of other impacts that are much more significant to the economy than just airline problems.