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The Boston Globe

Business

US to create gas reserves for New England, Northeast

The federal government will open the nation’s first two gasoline reserves, in New York and New England, most likely near Boston, to guard against fuel shortages if supplies are disrupted by events such as Hurricane Sandy, which battered the East Coast in October 2012.

US Energy Secretary Ernest J. Moniz, a Fall River native, said the reserves — which will be placed near New York Harbor and in the Boston region — will each hold 500,000 barrels of gasoline. Together, that’s roughly a third of the gasoline consumed on the East Coast each day.

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The fuel, which will be kept in space leased from existing storage facilities, is expected to be available by late summer, typically the height of hurricane season. “This reserve is a step toward preventing another Sandy situation,” Moniz said during a Friday conference call with reporters.

Sandy left many communities flooded, without electricity, and unable to get the gasoline to power generators after two refineries and more than 40 terminals in New York Harbor were damaged by the powerful storm. Some gas stations went a month without fuel.

As part of a broader energy review, Moniz said his department is looking at whether similar reserves are needed in other areas of the country. It’s among the Obama administration’s initiatives to prepare for the effects of climate change, including violent weather.

John Kingston, director of news at Platts, a provider of energy information, said creation of the gasoline reserves might temporarily boost prices as government purchases add to demand. Just what the impact will be depends on how and when the government makes those buys.

“If they spread it out over time,” Kingston said, “it won’t even be noticed.”

The New York and New England gasoline reserves will be similar to existing stockpiles of government-owned petroleum products. Officials established the US Strategic Petroleum Reserve, which can hold 727 million barrels of crude, after the Arab oil embargo of the early 1970s. Emergency supplies were released in 1991 after Iraq invaded Kuwait, leading to the first Gulf War; and in 2005 after Hurricane Katrina damaged oil operations in the Gulf.

The Northeast Home Heating Oil Reserve, meanwhile, holds 1 million barrels of ultra-low sulfur fuel. The Heating Oil Reserve, created in 2000 under a bill by Massachusetts Senator Edward J. Markey, a Democrat, was used for the first time following Hurricane Sandy. The Obama administration released emergency supplies to the Department of Defense for distribution to federal, state, and local first responders.

While the exact cost of the new reserves will be determined by the price of gasoline, they are expected to run about $200 million combined.That money will come from the occasional sale of supplies from the Strategic Petroleum Reserve.

The US government sometimes sells portions of its stockpile in order to test whether its system is ready to respond in an emergency situation. It held a test sale in mid-March, when it offered 5 million barrels of crude for sale.

Kingston, of Platts, said one potential drawback of government-owned gasoline reserves is the question of whether a government cache of fuel will discourage private enterprises from building their own inventories.

“That’s always a risk, always a concern,” he said, but having a federal gas reserve is “probably not going to do any harm.”

Markey and Senator Charles E. Schumer, Democrat of New York, joined Moniz to announce the creation of the gasoline reserves Friday.

“This gasoline reserve is right up there with sandbags and seawalls in terms of what we need to be ready for super-charged storms,” Markey said.

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