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By Mehgan Belanger
As Galveston, Texas residents continue to rebuild after Hurricane Ike thrashed the area when it made landfall Sept. 13, convenience retailers are realizing new lessons from the storm and the resulting three-week gas shortage that left pumps dry across much of the Southern U.S.
Like a domino effect, the first tile fell when Hurricane Gustav, a Category 2 storm, hit Cocodrie, La., Sept. 1. While Gustav was less intense than originally forecast, the storm stopped 1.3 million barrels per day (bpd) of offshore oil production and roughly 2.67 million bpd of refining capacity. Less than two weeks later, Galveston, Texas area residents fled as Hurricane Ike barreled into the Gulf Coast, extending the closure of oil and refinery operations, including the Colonial Pipeline, a 1,400-mile gas system that travels from Texas to Tulsa, Okla., and serves many gas retailers in the Midwest.
In Ike's wake, with an estimated 20 percent of U.S. refinery capacity shuttered, gas retailers across the South suffered empty fuel tanks as consumers took to panic-buying. The heaviest hit regions included Atlanta, Nashville, Tenn. and Tallahassee, Fla. Shortages stretched as far north as St. Louis, and east to Maryland, Virginia, and the Carolinas, according to published reports.
In the Charlotte, N.C. area, between 30 and 40 Worsley Companies' stores were out of fuel at any given time, said vice president of merchandising, Rich Mione, adding when stations had fuel, or tankers arrived on site, drivers would "line up for a mile," and constantly top off their tanks, or fill five-gallon plastic containers with fuel, all of which did not help the situation.
Meanwhile, long lines "killed" inside sales because customers did not want to go inside stores after dealing with the wait, he said. Heightened gas demand resulted in higher retail prices, which caused several state attorneys general to claim retailers were price-gouging. To avoid such claims, Mione took a proactive approach, including speaking with the state attorney general before the storm and taking pictures with timestamps of competitors' pricing.
"It's a struggle with the supply issue. If you price too low, you'll run out, and if you price to high, you are accused of gouging," he said. "We took pictures of the competition to show how the market moved."
In Atlanta, one of the hardest-hit areas, approximately half of QuikTrip's 111 stores were completely out of fuel due to the storm. But it was an existing preparedness plan that helped the chain manage the situation and its customers, said company spokesman Mike Thornbrugh.
"We learned a great deal about people and how to manage supply from Hurricanes Katrina and Rita," he said. "With that knowledge, and with the luxury of knowing what happened to refinery and pipeline capacity from Hurricanes Gustav and Ike, we could put lessons together from what we knew and what we didn't know, to manage supply the best we could."
To do so, the company took a representation of QuikTrip stores in each quadrant of Atlanta, and decided to keep a certain number of stores open with gas 24-hours a day.
"If you to tried to get every station full, you would be completely out. If you tried to get half the pumps working at all of your stations, you wouldn't be able to manage traffic," Thornbrugh explained. "This was the most logical thing to do to manage supply. The carriers knew which stores they had to just keep running to, and the customers knew these QuikTrip stores would have gas until later notice."
The shortage lasted through the first week of October for QuikTrip, but other operators were still trying to get back online by that time, Thornbrugh said, adding he was surprised at the number of stations without an apparent plan in place.
"Mother nature is going to win every time, so knowing that, you'd be well advised to have some type of plan together," Thornbrugh said. "I was amazed how many other [stations] never got gasoline, which compounded the problem for QuikTrip. It strained our system beyond belief."