Colonial Pipeline, the largest U.S. pipeline provider of refined petroleum products, learned on May 7 that the company’s industrial control system had been hit by a ransomware attack. Operations on its East Coast fuel transportation pipeline have been suspended and gasoline and diesel supplies on the U.S. East Coast have been affected.
The impact of the pipeline attack is the largest ever. That’s because Colonial Pipeline is the largest gasoline, diesel and jet fuel system in the United States and an important source of fuel supply for the northeastern United States.
But this is not the first time that energy assets in the U.S. and elsewhere have been hacked recently, and this attack is just a microcosm of that. Not only control systems, but also service and operational aspects have been hacked.
Global energy systems under attack
Last month, Iran said its largest uranium enrichment facility was targeted by nuclear terrorism, and the Natanz nuclear power plant, which has thousands of gas centrifuges, suffered a power outage. A senior official said the move was intended to thwart Iran’s nuclear process and the ongoing nuclear talks in Vienna.
In February 2020, the U.S. Department of Homeland Security issued a warning that U.S. natural gas equipment was disrupted for two days due to a ransomware attack. Hackers used an email containing a malicious link to take control of the equipment’s information technology systems.
In November 2019, Petróleos Mexicanos’ computer systems were crippled by a cyberattack that affected the company’s communications systems for weeks after the incident. Hackers attempted to extort nearly $5 million from the company, but the company refused to pay the ransom.
In April 2018, several natural gas pipeline operators, including Energy Transfer Partners LP and TransCanada Corp. reported cyber attacks on third-party electronic communications systems. Five of the companies confirmed that the hacking attack caused service disruptions. The attack forced utilities to warn about widespread billing delays and made it difficult for analysts and traders to predict the status of U.S. government natural gas inventories.
In December 2016, hackers hit nearly a quarter of Ukraine’s power grid, with at least 30 of 135 substations hit by the hack, and the incident lasted about six hours. The hackers used malware to direct the utility’s industrial control computers to disconnect the substations. A virus was then inserted that rendered the computers inoperable.
In 2012, unknown persons outside the country launched a cyber attack against Saudi Arabian Oil Company in an effort to disrupt the country’s crude oil production. More than 30,000 computers were attacked with malware, and the company’s oil production was once a cause for concern.
Such hacking of energy facilities is a common occurrence, reflecting the vulnerability of countries’ energy facilities to cyber attacks. In a tweet, Fatih Birol, director general of the International Energy Agency (IEA), said.
“This attack on Colonial Pipeline tells us that it is critical that we are sufficiently capable of ensuring stable energy supplies in the face of cyber attacks. This is becoming even more urgent as digital technology plays an increasing role in the energy system.”
How will the U.S. government respond?
How will the U.S. government respond to this?
The U.S. president can use a range of emergency powers to ensure that oil supplies continue to flow to major cities and airports on the U.S. East Coast. Previous U.S. presidents have taken similar emergency measures to secure fuel supplies after hurricanes, pipeline shutdowns and other disasters. Biden also took an emergency measure on Sunday: extending the drivable hours of fuel delivery drivers.
Under the emergency waiver issued by the U.S. government, tankers delivering fuel to 17 states and the District of Columbia are allowed longer transit time. The Federal Motor Carrier Safety Administration (FMCSA) said in an emailed press release that the move is intended to avoid supply disruptions in states from Alabama to New York.
In addition, the U.S. does have emergency gasoline reserves. The U.S. Department of Energy has access to its 1 million barrels of diesel fuel reserves in the Northeast. Currently, there are 400,000 barrels in storage tanks in the Boston area, 300,000 barrels in the New York Harbor area and 300,000 barrels in the Groton, Connecticut area.
ClearView Energy Partners said in a research note to clients that while releasing this inventory may help in some areas, it is nothing more than a contingency. A prolonged pipeline disruption that causes gasoline prices to spike could trigger emergency intervention.
Kevin Book, managing director of ClearView Energy Partners, said the White House may be reluctant to waive environmental regulations on gasoline, but may have to do so if there is a severe supply shortage.
Traders urgently seek alternative sources
With it unclear when the system will be restored, traders are already looking for vessels to deliver fuel to the U.S. East Coast.
Danish oil products tanker company Torm A/S said it has temporarily chartered four vessels to deliver diesel or gasoline from Europe to the U.S. Atlantic coast. The company added that if the disruption continues, U.S. imports from Europe are expected to increase, but they could also come from Asia, which would have a positive impact on the freight market.
Some tankers have also been secured to temporarily store gasoline in the event of a prolonged gasoline outage in the U.S. Gulf Coast, according to market participants who asked not to be named.
ClearView said the Colonial outage comes at a critical time in the U.S. economic recovery – the start of the summer driving season. And the continued disruption will lead to a significant spike in gasoline prices, which could subsequently increase the likelihood of domestic policy intervention.
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