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U.S. to create gasoline reserve in Northeast after Sandy shortages

By Ayesha Rascoe

WASHINGTON (Reuters) - The U.S. government will create a million-barrel gasoline reserve in the Northeast, a reaction to the aftermath of Superstorm Sandy in 2012 when motorists were left without fuel, exposing vulnerabilities in the fuel distribution network.

The Energy Department said on Friday that two sites will each store 500,000 barrels of gasoline by late summer, one near New York Harbor and one in the New England region. It said the $200 million emergency reserve would complement an existing heating oil stockpile, which holds a million barrels of diesel fuel.

The department will lease space from commercial storage companies for the emergency stockpile, but it will have to buy the gasoline because it does not currently have reserves of the fuel.

"This is part of a broader commitment to a more secure and resilient energy infrastructure," said Energy Secretary Ernest Moniz on a conference call.

With the Northeast consuming more than a million barrels of gasoline a day, the reserve would be aimed at providing some short term relief for consumers and first responders after major disasters.

Refiners complained they were left out of the decision to create the new reserve.

"Since the decision ... was made with no input from the industry, we question whether due consideration was given to how the gasoline reserve will be filled, managed, and dispersed," said American Fuel and Petrochemical Manufacturers President Charles Drevna.

The group urged the department to consult with the industry as it establishes the stockpile to prevent "unintended consequences."

Sandy battered the Northeastern coast at the end of October 2012, destroying homes and buildings, closing refineries and disrupting gasoline supplies.

The storm prompted the administration to tap the heating oil reserve for the first time since it was established in 2000.

But with power lines down and more than 40 terminals in New York Harbor closed due to water damage, getting gasoline to consumers was also an issue.

One issue the reserve will not be able to address is how to overcome the electricity outages such as those caused by Sandy that shuttered gas stations.

"It's a bit like treating the symptom when the primary problem was not a shortage of supply but a lack of (electric) power to move the product," said Michael Hiley, head of energy trading at LPS Partners Inc.

The Energy Information Administration estimated in the days after the storm that as many as 67 percent of the gas stations in the New York metropolitan area were not open, either because they had no power for their pumps or had not been able to take delivery of fuel.

Lawmakers pressed the Obama administration to ensure the fuel crunch would not be repeated.

Senator Charles Schumer, of New York, said scarce gasoline supplies created panic after Sandy hit, as people waited hours in line for fuel at the stations that were operating.

"This was adding salt into the wounds," said Schumer, who pressed for a regional reserve after the storm.

Energy Secretary Moniz and Schumer acknowledged that the reserve was only one part of the solution to preventing fuel disruptions. New York and New Jersey have looked at equipping gas stations with backup generators that would be able to operate after a natural disaster.

The idea of an emergency reserve for gasoline and other products had been floated in the past. After Hurricane Katrina in 2005, the U.S. considered stockpiling oil products, although that plan eventually fell to the wayside.

(Additional reporting by Susan Heavey, Timothy Gardner, Valerie Volcovici and Robert Gibbons; Editing by Sofina Mirza-Reid and Grant McCool)

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