Posthaste May 10: Pipeline hack highlights vulnerability of North America's stretched energy infrastructure

 

© Provided by Financial Post Storage tanks at the Colonial Pipeline Co. Pelham junction and tank farm in Pelham, Alabama, U.S., on Monday, Sept. 19, 2016. Fuel suppliers are growing increasingly nervous about the possibility of gasoline and diesel shortages across the eastern U.S. almost two days after a cyberattack knocked out a massive pipeline

.


Yadullah Hussain

Good morning!

Energy infrastructure’s vulnerability has long been identified as a clear and present threat to North America’s energy security.

And it came to pass over the weekend.

Hackers seeking ransom broke into privately-owned Colonial Pipeline Co.’s systems, forcing the company to shut one of the country’s major arteries for fuel delivery.

The Georgia-based company said it moved quickly to contain the threat and halted operations as it sought to restore the system. It has yet to identify a restart date.

“While our mainlines (Lines 1, 2, 3 and 4) remain offline, some smaller lateral lines between terminals and delivery points are now operational. We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations,” the company said in a statement.

The pipeline connect refineries throughout the Southern and Eastern United States through a pipeline system that spans more than 5,500 miles between Houston, Texas and Linden, New Jersey. Koch Capital Investments Co. LLC and Shell Midstream Operating LLC are among the five entities that own the pipeline.

The shutdown of the conduit, which ships around 2.5 million bpd of refined products, has already pushed up prices of gasoline and diesel, as the expectation is that both will be in short supply as long as the pipeline is sidelined.

“Given that the pipeline delivers nearly half of the diesel and gasoline consumed on the East Coast, depending on the duration, the supply shock could leave the region with widespread fuel shortages, sparking a jump in diesel and retail gasoline prices that at US$2.96/gal are already flirting with the highest nationwide levels in over five years,” according to Michael Tran, an analyst with the Royal Bank of Canada.

U.S. West Texas Intermediate crude rose 0.4 per cent to US$65.14 Monday morning.

The U.S. Department of Transportation introduced emergency measures on Sunday to facilitate deliveries, lifting driver restrictions on fuel haulers in 17 states affected by the shutdown, and noted that it could take additional measures if the outage continues.

“Similar to the February freeze crisis, the impacts will be localized. While northeastern and southeastern states may see increased prices at the pump, other regions with more robust products inventories, such as the U.S. Gulf Coast, may not see the same price surge,” according to Rystad Energy.

The cyberattack also underscores the vulnerability of North America’s energy infrastructure, which has long been stretched due to delays in building new energy systems, poor economics and environmental fights.

“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,” wrote RBC’s Tran.

A former U.S. official and two industry sources told Reuters that among their suspects are DarkSide, a notorious group comprising veteran cybercriminals. But the group has stayed uncharacteristically silent, in contrast to its penchant for promoting its successes, Reuters noted.

Given the heightened political and environmental scrutiny around energy infrastructure, especially pipelines, the latest attack should alarm companies and intelligence agencies on both sides of the border.

Nor is old-school energy the only vulnerable point. A report by the U.S. Department of Energy last year warned that as the use of wind and other renewable energy systems become more widespread, “cybersecurity for integrated control systems and related technology has become an increasingly important and urgent matter.”

While the pandemic response has taken priority for businesses and governments over the past year, Canadian companies continue to report higher rates of cyberattacks. A recent CDW Canada report revealed that 99 per cent of businesses it surveyed had experienced a cyberattack over the past year.