Hurricane Harvey’s Toll on Texas Energy
As Texas cities deal with the devastating human toll that Hurricane Harvey is leaving in its wake, the state's energy markets begin to take stock of possible damage at refineries and of disrupted production. In the Gulf of Mexico, approximately 21 percent — 378,633 barrels per day — of the 1.75 million barrels of oil produced each day is offline. Similarly, Harvey cut natural gas production by about 25.71 percent — 827.89 million metric standard cubic meters per day (MMSCFD). In south Texas, the Eagle Ford Rock Formation (rich in shale oil and shale gas) halted an estimated 300,000 to 500,000 bpd of production, according to the Texas Railroad Commission. Many of the energy-related ports and terminals are closed, causing a delay of about 14 crude oil tankers in the Gulf.
On the refining side, there is about 2.25 million bpd of capacity that has already been dialed back or that is in the process of shutting down, though Valero is preparing to restart operations at its refineries in Corpus Christi. This represents about 12 percent of total U.S. refining capacity and 23 percent of the Petroleum Administration for Defense District 3 (PADD) refining capacity on the Gulf Coast. Harvey left the refining industry to the east of Houston largely unaffected, but there are four refineries with a combined capacity of about 1.5 million bpd in Port Arthur and Beaumont, which could be directly hit when the hurricane makes its second landfall — not to mention the refineries in Lake Charles, Louisiana.
The latest National Hurricane Service and National Oceanic and Atmospheric Administration forecast predicts that Harvey's second landfall will be east of Houston, which could help reduce future rainfall. Even so, Harvey will affect the heart of the U.S. refining sector for several weeks, possibly months. After flooding, refineries must perform a number of inspections, tests, repairs and other operations before resuming operations. In the case of previous hurricanes that have hit the Gulf Coast, this process has taken weeks.
Lastly, depending on how long these problems continue, Texas could experience localized shortages of gasoline. Already, the Brent and WTI spread (two benchmarks to determining crude prices) increased to over $5 a barrel because of the disruption caused by Hurricane Harvey.