Tropical Storm Harvey threatens vital Texas energy hub
Tropical Storm Harvey hit Texas late Friday, barreling down on vital oil and gas facilities on the U.S. Gulf Coast that serve as the nerve center of America’s energy infrastructure.
Harvey made landfall as a Category 4 hurricane and was downgraded to a tropical storm by mid-Saturday. It still threatens to cause prolonged disruptions to the critical refineries along the Texas Gulf Coast.
The area is home to nearly one-third of the nation’s capacity to turn oil into gas, diesel and other products. Gasoline prices are poised to rise steadily higher depending on the severity of the damage and length of outages.
The storm forced the evacuation and shutdown of several refineries. It landed northeast of Corpus Christi, threatening the nation’s leading port for crude oil exports.
“So far the biggest impact is on Corpus Christi area ports, terminals and refineries,” said Jeff Mower of S&P Global Platts.
Port personnel were working early Saturday to assess the damage, the port’s executive director John LaRue told CNNMoney.
The port worked all week to prepare for the storm. LaRue said pilots stopped boarding vessels Thursday afternoon and maintenance workers have tied down everything that projected winds of 125 miles per hour could “turn into missiles or projectiles.”
Harvey also forced the shutdown of the Houston Ship Channel on Friday for incoming and outgoing vessels.
To meet America’s enormous appetite for oil, more than 3 million barrels of waterborne crude gets shipped to the U.S. Gulf each day from places like Mexico, Colombia and Saudi Arabia, according to ClipperData. The U.S. Gulf Coast also exports about 1 million barrels of crude each day to customers overseas.
Harvey is also disrupting oil and natural gas production in the Gulf of Mexico and inland as energy companies evacuate rigs and platforms. ConocoPhillips said Friday that it suspended all operations in the Eagle Ford shale field and evacuated some personnel from a platform in the Gulf of Mexico.
The U.S. Bureau of Safety and Environmental Enforcement said Saturday that about 24% of oil production in the Gulf of Mexico had been shuttered and 26% of the Gulf’s natural gas production was offline.
The Gulf is home to almost one-fifth of total U.S. oil output, according to the EIA.
“It’s the key energy hub of the U.S,” said Matt Smith, director of commodity research at ClipperData.
Harvey is the first major storm to seriously threaten the U.S. Gulf Coast in several years. Hurricanes Gustav and Ike in 2008 as well as Hurricane Isaac in 2012 all knocked more than 1 million barrels of Gulf oil production offline, according to the EIA. Those hurricanes also temporarily disrupted refining capacity.
Hurricanes that land in Texas tend to have little impact on oil production, but more significant consequences for refining, according to Tom Kloza, chief oil analyst at the Oil Price Information Service.
Early Saturday, the storm began pummeling Houston, which is an even bigger refining center. The Houston, Texas City and Baytown region have 11 refineries that can handle 2.7 million barrels per day, Kloza said. That’s about 14% of the country’s refining capacity.
“If the storm camps out between Corpus Christi and Houston for several days, infrastructure will stay offline for longer and there will be bigger impacts on pricing,” said Jenna Delaney, senior oil analyst with Platts.
Houston also marks the beginning of the Colonial Pipeline, which transports more than 100 million gallons of gasoline, heating oil and aviation fuel each day to as far as the New York harbor. Power outages during Hurricanes Katrina and Rita in 2005 forced the shutdown of parts of the Colonial Pipeline for several days.
Kloza said that normally refining is knocked offline for just a brief time, making the impact on prices just fleeting. But that depends on the severity of the storm.
“Katrina was the exception,” Kloza said, referring to the 2005 storm that badly damaged Gulf Coast operations.
He predicted Harvey is likely to cause only a short-term jump of 5 to 10 cents per gallon in gas prices, though he said a 25-cent spike in a worst-case scenario is also possible.
“You’re talking about a situation where a month from now gas prices will probably be lower. But a week from now they’ll be higher,” said Kloza.