Gas Supply Chain Bottlenecks — Explained
Interesting talk by Jarrod Goentzel, Director MIT Humanitarian Supply Chain Lab here.
Goentzel attempts to pinpoint bottlenecks in supply chain disruptions, a frequently relevant problem lately. It’s like explaining what caused the traffic you’re sitting in.
The Problems
He begins with the Colonial Pipeline ransomware attack. The cyber attack caused the pipeline to shut down for one week. For some context, the Colonial Pipeline streams petroleum from the Gulf ports in Houston, Texas through the Southeastern US, up to New Jersey and just outside of New York City. 45% of all fuel on the east coast of the US travels via the Colonial Pipeline.
Interestingly, the pipeline being shuttered for one week was sustainable — longer, less public shut downs have occurred. Colonial was prepared for such an event — there is about three weeks of inventory at gas terminals along the pipeline. Yet there were gas big shortages during this shut down.
The reason for the shortages was panic buying which drove demand for fuel well above normal levels. The supply chain was in tact up until the point that everyone assumed it wasn’t. Then the final part, also known as the final mile, of the supply chain was strained beyond capacity.
The final mile of gas distribution is supported by truck drivers and fuel tankers. These tankers fill up at terminals supplied by the pipeline. The tankers then carry the gas to gas stations where the end customers fill their vehicles. There are a limited number of drivers and tankers and trips which can be made each day by them — usually two or three.
Let’s look at the entire supply chain for fuel:
- Extraction of oil.
- Moving oil to refineries.
- Refining and distribution of petroleum. This step has three sub-parts: production at refineries, middle mile distribution from refineries to terminals, then final mile distribution from terminals to gas stations.
It’s very silly that the easiest seeming part causes the biggest problem sometimes.
In fact, the issue is no different in recent years after major Hurricanes in the Gulf Coast. After Hurricane Irma in Florida, many truckers were hesitant to take their trucks south into Florida for fear of inability to buy gas. Panic buying here caused that fear. Which in turn caused other supply chain shortages because truckers were hesitant to pickup and deliver to Florida.
The Solutions
Supply chain bottlenecks are often ambiguous and unsolvable. Sometimes they are obvious but not still easily fixable. FEMA has a big stake in solving these problems when they matter most.
Potential improvements to supply chain resilience can be driven by both the private sector and the public sector. The government can extend driver Hours of Service to keep up with surge in demand. They can also ease the process of obtaining a commercial driver’s license (CDL). Private companies can relax rules around driver training when picking up fuel at a terminal. Typically drivers in a region are certified to pick up fuel at certain terminals. Relaxing these rules or expediting training allows drivers from outside the region to pick up the slack in the system.
Power companies are more matured here. They have mutual agreements from one state to another for calling help during an extended outage.
There are limits on what can be done though. The gas supply chain, for example, is highly optimized for having terminals close to gas stations and tankers running 2–3 trips/day. While added driver capacity can help here, it’s not so easy in the middle mile. The Colonial Pipeline carries the equivalent of 11K trucks of fuel each day. It’s impossible to duplicate given an extended pipeline shutdown.
Supply chains are complex systems. They are resilient but not perfect. And apparently, sometimes the problem is us.
