Hurricane Harvey hits US oil and gas industry

A growing number of US Gulf Coast refinery outages and port closures were reported on Wednesday 30 August 2017 as Hurricane Harvey continued to flood the area. According to S&P Global Platts, some 3.04mn b/d of Texas refining capacity (16% of US capacity) remained down due to closures. However, assuming refiners cutting runs or in the process of returning are at 50% capacity, the total downed capacity could be as much as 4mn b/d, some 22% of the US total,  reported the analyst. (See Tables 1 and 2.)

The terminals sector has also been impacted, with Phillips 66, for example, shutting its 10.2mn barrel capacity Beaumont crude and products storage terminal at Nederland, Texas. The terminal connects to the Bayou Bridge Pipeline, which transports crude directly to the Lake Charles refinery in Louisiana, including Permian and Bakken crude.

As a result, refined product futures have risen. On 30 August, the October Nymex RBOB (reformulated gasoline blendstock for oxygen blending; the term given to unleaded gas futures) crack spread ended the day around $22.75/b, up from $15.76/b the previous Wednesday. The October ULSD (ultra-low sulphur diesel) crack was trading around $23.23/b, up from $20/b a week earlier. Spot gasoline price differentials were also higher, as were Midwest gasoline differentials as the Texas-to-Illinois Explorer Pipeline closed on midnight 29 August to allow products to back up at the start of the line and enable faster deliveries.

Meanwhile, S&P Global Platts reports that Western Canadian crude oil prices sank to nearly five-month lows as the market began to price in the expectation that North America will see a massive oversupply of crude as the Texas refining sector remains largely out of commission.

Trade flows

The stream of distillate cargoes from the US Gulf Coast to north-west Europe and the Mediterranean basin has all but halted in the past week as tropical storm Harvey has forced the closure of terminals, ports and refineries in addition to potentially disrupting market flows. ‘Given the disruption there is talk of potentially a reverse arbitrage from Europe to the US emerging,’ notes S&P Global Platts.

In addition, US refiners have begun making inquiries for prompt-loading jet cargoes from North Asian suppliers. Various north-east Asian end-users are also bracing themselves for possible lengthy delays in the delivery of North and Central American crude oil supply,with three South Korean refiners expecting to receive cargoes from the US and Mexico behind their initial September schedule.

Pipeline closures

As noted, the Explorer Pipeline was closed at midnight on 29 August to allow product to back up at the start of the line and enable faster deliveries at the northern end. It is expected to reopen sometime before Friday 2 September. Meanwhile, the Colonial Pipeline, which delivers refined products to the US north-east, is running at reduced capacity due to limited supply from Houston refiners.

Magellan Midstream has suspended operations on two long-haul pipelines, BridgeTex and Longhorn, which carry a combined 675,000 b/d of crude from the Permian Basin in Texas to the US Gulf Coast, while Kinder Morgan shut down ‘select systems’ of its 300,000 b/d crude and condensate pipeline in Texas.

Moving to the E&P sector, S&P Global Platts reports that oil operators in the onshore Eagle Ford Shale in South Texas have begun to restart wells and related midstream facilities. Before the storm hit, the Eagle Ford was producing about 1.341mn b/d of oil, and 5.1bn cf/d of natural gas

US Gulf of Mexico offshore production is also coming back onstream. The US Bureau of Safety and Environmental Enforcement showed 323,760 b/d of oil output shut-in on Wednesday 30 August, or 18.50% of total Gulf of Mexico output, down from 428,568 b/d the previous Saturday.

Note: This is a fluid situation and prices and data can change rapidly. The date reported n this article represents the situation as of 30 August 2017.

Table 1:  Refineries that have been or are in the process of being shut or reducing runs

Source: S&P Global Platts

Company                  Location                    Capacity (b/d)

ExxonMobil                Baytown                     560,500

ExxonMobil                Beaumont                  362,300

Citgo                          Corpus Christi            157,500

Magellan                    Corpus Christi            50,000

Buckeye*                   Corpus Christi             50,000

Shell                           Deer Park                   340,000

Petrobras                    Pasadena                  112,229

Motiva                         Port Arthur                 603,000

Total                            Port Arthur                 225,500

Valero                         Port Arthur                 335,000

Phillips 66                   Sweeny                      247,000

Total capacity closed                                     3,043,029

Share of US capacity                                    16%

*Not confirmed

Table 2: Refineries running with reduced rates or returning to previous rates

Source: S&P Global Platts

Company       Location                     Capacity (b/d)            50% of Capacity (b/d)

Flint Hills        Corpus Christi West     230,000                       115,000

Flint Hills        Corpus Christi East      70,000                         35,000

Valero*           Texas City                     293,000                       146,500

Valero*           Three Rivers                 89,000                         44,500

Lyondell          Houston                        263,776                      131,888

Valero             Texas City                     225,000                      112,500

Marathon*       Galveston Bay             459,000                       229,500

Marathon*       Texas City                    86,000                         43,000

Valero*            Houston                       191,000                        95,500

Total capacity reduced                        953,388

Closed + reduced capacity                 3,996,417

Share of US capacity                          22%

*Not confirmed

The Texas Gulf Coast is home to 4.944mn b/d of refining capacity, while the Louisiana Gulf Coast is home to 3.696mn b/d of capacity, according to the US Energy Information Administration. Total US capacity is 18.557mn b/d.

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