Why Some Regions See Gas Price Surges After a Storm—And Why Others Don’t

When a hurricane strikes the Gulf Coast, oil prices often skyrocket. But regional transportation networks can help and cushion the impact on prices, suggests research by Chicago Booth’s John R. Birge, University of Toronto’s Timothy C. Y. Chan, Wilfrid Laurier University’s Michael Pavlin, and University of Toronto PhD candidate Ian Yihang Zhu.

Their finding has implications for the commodities industry, but also for the many people and companies affected by recent and ongoing supply-chain disruptions.

The researchers focused on the Colonial Pipeline, which connects Gulf Coast refineries to the Port of New York and New Jersey. In 2016, it experienced a massive leak followed by an explosion, then shutdowns caused by hurricanes in 2017, and most recently a ransomware attack in 2021. These events interrupted the supply of oil, gasoline, and jet fuel from Gulf refineries to the east coast of the United States.

The researchers developed a model to map the relationship between gasoline prices and regional transportation structures. They also created a methodology to estimate the strength of different transportation networks on the basis of price data. They then applied the methodology to real-life case studies of the Colonial Pipeline.

In the US oil and gas industry in particular, there is often a focus on pipeline distribution, Birge says. However, “the gasoline distribution network is much more complex than the limited number of direct pipelines,” he adds. Other transportation modes such as ship, rail, and truck may not be as obvious, he says, “but their relative availability in terms of linking markets can produce large differences.”

Take the problems the pipeline had in 2016. Line 1 of the Colonial Pipeline experienced a leak in Shelby County, Alabama, on September 9, forcing a partial shutdown until September 21. Then on October 31, a deadly explosion in Shelby County caused another partial shutdown until November 8.

Locations immediately downstream from the disruption site—in particular, Atlanta and Nashville, Tennessee—predictably experienced the most significant price increases following the initial pipeline leak, the researchers find. This was especially the case in Nashville, where there were no alternative modes of gas and oil transport. The finding is consistent with the researchers’ expectation that, when there is a disruption affecting a single link in the gas transportation structure, the locations most directly downstream will experience the highest price surges. The magnitude of price jumps in other locations depended on the availability of alternative transportation resources, the researchers find.