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Harvey Throws a Wrench into US Energy Engine


An oil tank damaged by Hurricane Harvey is seen near Seadrift, Texas, August 26, 2017.
An oil tank damaged by Hurricane Harvey is seen near Seadrift, Texas, August 26, 2017.

A hurricane in the heart of the U.S. energy industry is expected to upend years of U.S. excess oil capacity and low prices, with the impact expected to reverberate globally and affect energy markets for weeks.

Harvey hit the Texas shore as a fierce Category 4 hurricane, causing massive flooding that knocked out 11.2 percent of U.S. refining capacity, a quarter of oil production from the U.S. Gulf of Mexico, and closed ports all along the Texas coast.

Gasoline futures jumped as much as 7 percent to their highest level in more than two years in early Monday trading in Asia as traders took stock of the storm's impact.

The roof of a gas station sits in flood waters in the wake of Hurricane Harvey, Aug. 26, 2017, in Aransas Pass, Texas.
The roof of a gas station sits in flood waters in the wake of Hurricane Harvey, Aug. 26, 2017, in Aransas Pass, Texas.

Damage assessment could take weeks

The outages will limit the availability of U.S. crude, gasoline and other refined products for global consumers and further push up prices, analysts said.

Damage assessments could take days to weeks to complete, and the storm continues to drop near-biblical amounts of rain as it lingers west of Houston, home to oil, gas, pipeline and chemical plants.

More than 30 inches (76 cm) fell in the Houston area in 48 hours and a lot more rain is forecast, according to the National Weather Service.

“This is not like anything we have ever seen before,” said Bruce Jefferis, chief executive of Aon Energy, a risk consulting practice. It is too soon to gauge the full extent of Harvey's damage to the region's energy infrastructure, he said.

The storm was felt from coastal ports to inland oil and gas wells. Oil producers in the Eagle Ford shale region of south Texas have halted some operations.

Corpus Christi export terminals closed

At least four marine terminals in the Corpus Christi area, an export hub for energy deliveries to Latin America and Asia, remained closed due to the storm.

"We just simply don't know yet the damage all this rain will have on Houston's energy infrastructure," said Andrew Lipow, president of energy consultancy Lipow Oil Associates LLC.

Texas refineries could be offline for up to a month if their storm-drainage pumps become submerged, he said.

As the storm churned towards Texas on Friday, U.S. gasoline futures rose to their highest level in three years for this time of year. Those gains came even before several large Houston area refiners, including ExxonMobil, halted some operations.

Exxon closed the second largest U.S. refinery, its 560,500 barrel-per-day (bpd) refinery in Baytown, Texas, complex because of flooding. Royal Dutch Shell also halted operations at its 325,700-bpd Deer Park, Texas, refinery. The refinery may be shut for the week, it said.

Clouds from Hurricane Harvey are seen in the background as smoke rises from a burn off at an oil refinery in Corpus Christi, Texas, August 26, 2017.
Clouds from Hurricane Harvey are seen in the background as smoke rises from a burn off at an oil refinery in Corpus Christi, Texas, August 26, 2017.

Flooding keeps employees away

Flooding on highways between Houston and Texas City nearer to the coast led Marathon Petroleum to cut back gasoline production at the company's 459,000-bpd Galveston Bay Refinery in Texas City, said sources familiar with plant operations.

Marathon Petroleum employees were unable to drive to work and conditions at the plant forced the company to reduce gasoline output, said industry sources. Marathon spokesman Jamal Kheiry declined to discuss plant operations.

Not every plant in the region was hit. Operations were stable at the largest U.S. crude refinery, Motiva Enterprises' 603,000-bpd Port Arthur plant, the company said.

Motiva double-staffed the refinery's crew ahead of the storm, as did Total SA at the company's 225,500-bpd Port Arthur refinery, said sources familiar with plant operations.

Pipelines not affected

Coastal refineries in Texas account for one-quarter of the U.S. crude oil refining capacity. All of those refineries have been impacted by Harvey since Thursday when refineries in Corpus Christi, Texas, shut in production ahead of the storm's landfall on Friday.

Colonial Pipeline, the largest mover of gasoline, diesel and other refined products in the United States, said its operations had not been affected by Harvey. Any disruptions to the conduit would send prices across the U.S. Southeast and Northeast soaring. Traders have been keeping a close eye on whether there will be an outage at the pipeline.

Citgo Petroleum and Flint Hills Resources, two of the refiners that closed last week as the storm approached, did not provide updates about the status of their Corpus Christi refineries on Sunday.

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    Reuters

    Reuters is a news agency founded in 1851 and owned by the Thomson Reuters Corporation based in Toronto, Canada. One of the world's largest wire services, it provides financial news as well as international coverage in over 16 languages to more than 1000 newspapers and 750 broadcasters around the globe.

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