Hurricane Harvey Shuts Down Texas Oil Refineries: Weeks to Recover

By BEN LEFEBVRE Updated at 2017-08-29 14:38:11 +0000

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The hole that Hurricane Harvey ripped across the energy industry along the Gulf Coast will take time to repair, and the Trump administration doesn't look ready to tap into the government's crude oil reserves to head off a jump in gasoline prices.

As much as 10 percent of the U.S. oil refining capacity was shut down in advance of the powerful storm that roared ashore and dumped several feet of rain along the coast from Corpus Christi into Louisiana. Those plants are likely to take weeks to return to full operation as crews pore over them looking for damage.


BY BEN LEFEBVRE of Talking Points Memo

“This is a rainfall of biblical proportions right over the center of the refining industry,” said John Auers, executive vice president of refining consultancy Turner, Mason & Co. “There’s so much water and so much flooding that damage assessments are going to come no earlier than this weekend.”

At least 10 Gulf Coast refineries have been affected, and reports are coming in of operators shutting down wells and taking pipelines offline in South Texas' prolific Eagle Ford shale region, said Ryan Sitton, commissioner for the Texas Railroad Commission, which oversees energy production in the state.

"Once you shut in a well they don't immediately come back online," Sitton said by email. "It could take weeks for production to bounce back and refining capacity to ramp back up."

The Energy Department, which controls the underground storage facilities that hold the nation's Strategic Petroleum Reserve, is closely watching supply chains at the regional and national levels. "Right now, our sector partners and industry partners say there are really no unmet needs,” an agency official told reporters.

Exxon Mobil shut down its massive Baytown, Texas, refinery, the second-largest in the country, and Shell, Phillips 66 and Valero all said they halted production at some of their plants along the Texas Gulf Coast.

Those shutdowns drove gasoline prices up as much as 10 cents a gallon in the futures market, though much of the rally had faded by midafternoon, with prices holding gains of about 5 cents per gallon.

But fuel prices at the pump could jump up to 35 cents a gallon higher in the Gulf Coast markets because of all the refinery shutdowns, according to Patrick DeHaan, analyst at GasBuddy. And that would nudge prices higher in other parts of the country.

“No surprise, gas prices are going to go up,” DeHaan said. “Whenever you see a refining hub like Houston shut down, you’re going to see a psychological reaction from traders, so the rest of nation will see an impact.”

The effect outside the region could be muted because gasoline inventories are higher now than they were when Hurricane Ike hit in 2008. That storm prompted DOE to ship nearly 5.4 million barrels of oil from its Strategic Petroleum Reserve to refineries to ensure they could produce fuel. DOE also pumped 1 million barrels to Marathon Petroleum after its supplies were disrupted by Hurricane Isaac in 2012.

Twenty percent of the offshore crude oil and natural gas production was shut down as companies pulled their crews from nearly 100 platforms in the Gulf of Mexico, according to the Bureau of Safety and Environmental Enforcement. And onshore production in South Texas has also dropped by 300,000 barrels of oil a day as flooding shuts in wells and causes pipeline operators to close their taps, oil traders told Reuters.

Still, experts say there's no immediate need to tap into the 680 million barrels that the Energy Department keeps on hand for emergencies.

"It’s unclear what long-term impacts are going to be,” said Andy Lipow, president of energy consultancy Lipow Oil Associates. “The rain isn’t quite over and flooding remains a concern. But we don’t need SPR oil — there's quite a bit more refinery capacity offline compared to the amount of oil shut in the U.S. Gulf.”

President Donald Trump, now facing his first major natural disaster, plans to visit Corpus Christi on Tuesday to survey the storm damage there. The White House on Monday declared an emergency for Louisiana, also home to a major chunk of U.S. refining capacity.

Even if refineries emerge unscathed from Harvey, there are other issues to deal with in the rain-soaked region. A refinery in Galena Park, just to the east of Houston, appeared to have not suffered damage, but flooded streets are preventing staff from returning to work, said Romana Nye, spokeswoman for the Texas Railroad Commission.

The hurricane has also halted tankers scheduled to carry oil in or out of the area. That has already caused European oil prices to increase as refineries there gear up to replace the diesel the continent imports from the U.S. Gulf Coast.

When it comes to the Houston area, "it will take a long time to get back to normal,” said Phil Flynn, oil and gas analyst at Price Futures Group. “It’s going to raise some larger issues from the industry if we’re going to be able to change the way we do business.”

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