Trump budget would sell entire U.S. Northeast gasoline reserve

By Devika Krishna Kumar

NEW YORK (Reuters) - The Trump administration is proposing to sell off in the coming fiscal year the entire gasoline reserve created in the aftermath of Hurricane Sandy, according to its budget proposal unveiled on Tuesday.

The U.S. Northeast Gasoline Supply Reserve (NGSR) was established in 2014 to minimize the impact of sudden supply interruptions, such as occurred in 2012 during Sandy, the second-costliest hurricane in the country's history.

The gasoline reserve was established as part of the Strategic Petroleum Reserve (SPR). It consists of 1 million barrels of gasoline blendstock and is stored in commercial storage terminals in Maine, Massachusetts and New Jersey.

"The NGSR has not been utilized and does not have the operational functionality that was envisioned post-Sandy," the budget proposal said. It noted that the NGSR's leased commercial storage contracts expire in the early part of fiscal 2019.

A sale would offset $69 million (53.2 million pounds) of discretionary spending, with any additional proceeds going to the U.S. Treasury's general fund for deficit reduction, the proposal says.

Sandy battered the northeastern U.S. coast at the end of October 2012, destroying homes and buildings, closing refineries and disrupting gasoline supplies. The U.S. East Coast accounts for over a third of national gasoline consumption.

The gasoline market is not likely to be affected significantly if the budget proposal is approved in its current form by Congress, said Robert Campbell, head of oil products markets at consultancy Energy Aspects, but it would leave the region at risk if another disaster struck.

"Nothing has changed very much (since 2012)... if we were to get in a situation where we once again have refinery closures on the East Coast, it would be a much more vulnerable market," he said.

The budget proposal for the fiscal year starting Oct. 1 also calls for selling half of the 688 million barrels of oil in the SPR, the nation's emergency crude stockpile. That would represent about 141 days of U.S. oil imports of oil but only about three days worth of global production.

"In some ways it seems more logical now to have a gasoline reserve than a separate crude reserve," said David Thompson, executive vice president at energy-specialized commodities broker Powerhouse in Washington.

"There is a time component involved in making and distributing gasoline, so if the Northeast refineries or the Colonial (pipeline) were affected by a major incident, it would take time to develop an alternative supply chain," he said.

Traders also said the gasoline reserve had been created so recently that its liquidation was unlikely to be approved by lawmakers quickly.

Under the Trump budget proposal, the existing Northeast home heating oil reserve of 1 million barrels would continue to operate.

(Reporting by Devika Krishna Kumar in New York; Editing by Jonathan Oatis and Paul Simao)