Updated on Aug. 29 with reporting from Reuters.
Heavy rains and flooding from Tropical Storm Harvey threatened more oil refineries along the Louisiana coast after hammering plants in Texas, forcing Exxon Mobil Corp. (NYSE: XOM) and Citgo Petroleum to consider shutdowns.
The storm dropped back over the Gulf of Mexico on Aug. 28, sending heavy rains from Houston through to Lake Charles, La. Between five and 15 inches of rain was expected in south-central Louisiana, the National Hurricane Center said on Aug. 29.
The Gulf Coast is home to nearly half the U.S. refining capacity, and nearly 2.7 million barrels per day (MMbbl/d) , or nearly 15% of U.S. refining capacity, is already shut off. Restarting those plants even under the best conditions can take a week or more.
Louisiana is home to capacity of about 3.3 MMbbl/d; Texas has about 5.6 MMbbl/d.
U.S. gasoline futures on Aug. 29 rose 0.9% to $1.73 a gallon, and have jumped about 6% since the Aug. 23 prestorm close. Heating oil futures, a proxy for diesel and other distillates, added 0.5%.
The remnants of Hurricane Harvey continued to test the Texas Gulf Coast energy industry on Aug. 28 after inflicting widespread havoc on upstream and downstream sectors, closed ports and cut off a third of Gulf of Mexico (GoM) production over the weekend.
About 19% of oil production remained shut-in on Aug. 28 in the GoM shut-in while E&Ps locked down some areas of the Eagle Ford Shale and Houston production. Along the coast, Harvey knocked offline about 11.8% of U.S. refining capacity.
Large scale damage and near-catastrophic flooding has affected much of the Texas coast though the extent will be difficult to discern until waters recede. About 291,000 customers were without electricity as of Aug. 27, according to the U.S. Department of Energy (DOE).
The Port of Corpus Christi Authority (PCCA) said Aug. 28 it has fully transitioned to post-storm recovery. Initial assessments indicate light to moderate damage and debris. Power has been restored to several facilities but most remain on emergency power including the harbor master’s office. PCCA is working toward returning to normal operations by Sept. 4.
Storm disruptions may be most keenly felt in downstream areas, depending on whether equipment is damaged. If the storms continues its path east through Houston, Goldman Sachs analysts warned that the storm’s path east through Houston risks of further refinery outages, according to an Aug. 28.
In the Corpus Christi, Texas, area six refineries were reported shut down, although one refinery had begun startup operations. In the Houston/Galveston area, four refineries started the process of shutting down.
Combined, the refineries make up 43.2% of total Texas Gulf Coast processing capacity, DOE reported.
E&Ps Dig In
Several E&Ps shut down operations and evacuated workers due linger heavy rains and flooding, ESAI Energy LLC, a market analysis and forecasting firm, said. ESAI said key Eagle Ford counties are under water and some drilling and completion activities have been halted until weather effects have passed.
“More than 500,000 [barrels per day] bbl/d of production is likely to be impacted from the South Texas region,” ESAI said in an Aug. 28 report.
Nationally, Goldman Sachs estimated oil production disruptions of at least 1 MMbbl/d—about 11% of U.S. totals—as well a reduction of 2 billion cubic feet per day (Bcf/d) of gas production, or about 3% of the U.S.’s 72 Bcf/d overall volumes.
In the Eagle Ford, prediction holds, at least a third of crude oil production could be at risk. In August, the Eagle Ford produced 1.38 MMbb/d of oil and 1.92 Bcf/d of natural gas, according to the U.S. Energy Information Administration (EIA).
On Aug. 28, Denbury Resources Inc. (NYSE: DNR) became the latest E&P to say Harvey had affected operations, with the company shutting in production at its Houston area fields. Denbury said 16,000 barrels of oil equivalent per day (boe/d) in net production would be taken offline. That represents about 27% of its second-quarter 2017 production, Capital One Securities said.
Impacted fields including Hastings, Oyster Bayou, Conroe, Thompson, Webster and Manvel.
Denbury said flooding had occurred in some locations no significant damage has been reported but the full impact of the storm is unclear and employees and contractors were evacuated as a precautionary measure.
“The safety of our employees and contractors is our top priority,” Chris Kendall, Denbury’s president and CEO said. “We will continue to monitor conditions at each of the impacted fields and will resume operations to restore production when conditions allow, and we are able to ensure the safe return of our personnel.”
Several Eagle Ford operators have reported halts to drilling and completions work and staff evacuations.
One of the Eagle Ford’s premier operators, Sanchez Energy Corp. (NYSE: SN) said its western Eagle Ford operation and productions escaped the brunt of the storm.
“While Hurricane Harvey has had a significant impact along the Gulf Coast, we can currently report that our operations and production in the western Eagle Ford in South Texas have been largely unaffected by the storm,” said CEO Tony Sanchez III. “We are very happy to report that currently none of our assets have sustained significant damage. “
According to staff and Reuters reports, other E&Ps had taken the following steps:
- BHP Billiton Ltd. (NYSE: BHP) shut down drilling and completion activities at its Eagle Ford shale operations.
- Chesapeake Energy Corp (NYSE: CHK) suspended drilling and completion of new wells in the Eagle Ford and evacuated staff.
- ConocoPhillips Co. (NYSE: COP) suspend Eagle Ford drilling and idled five rigs;
- EOG Resources Inc. (NYSE: EOG) evacuated high risk areas;
- Exxon Mobil Corp's (NYSE: XOM) XTO Energy unit said on Friday it has shut in some oil wells in the Eagle Ford shale region of Texas ahead of Hurricane Harvey
- Marathon Oil Corp. (NYSE: MRO) released non essential personnel and suspended operations where appropriate;
- Noble Energy Inc. (NYSE: NBL) halted well completions and sent nonessential personnel home.
- Pioneer Natural Resources Inc. (NYSE: PXD) said Aug. 24 it has stopped completing oil wells in the Eagle Ford shale region of Texas ahead of Harvey.
- Statoil ASA (NYSE: STO) evacuated staff;
- Baytex Energy Corp. (NYSE:BTE) suspended drilling and completion operations and evacuated its Houston office. The company said operations should resume this week.
GoM And Ports
In the GoM, production estimates were revised up moderately on Aug. 28 from a day before. About 98, or 13.3%, of platforms have been evacuated, according a report by the Bureau of Safety and Environmental Enforcement (BSEE).
Harvey has shut off about production of about 331,330 barrels of oil per day (bbl/d) of production in U.S. GoM waters out of total production of 1.75 MMbbl/d. About 583 million cubic feet per day (cf/d) of natural gas production is estimated to be down, about 18.12% of the GoM’s 3.22 Bcf/d.
Anadarko Petroleum Corp. (NYSE: APC) said Aug. 27 that it has returned crews to its operated Lucius platform in the GoM and production has resumed at its Constitution, Heidelberg, Holstein and Marco Polo facilities.
Anadarko personnel will not return to the company’s Boomvang, Gunnison and Nansen spars in the western GoM until the areas is declared safe.
BSEE’s shut-in production estimates are based on the amount of oil and gas the operator expected to produce that day.
After the storm has passed, facilities will be inspected. Once all standard checks have been completed, production from undamaged facilities will be brought back on line immediately. Facilities sustaining damage may take longer to bring back on line.
BSEE based its estimates on reports by 31 companies.
In addition, several ports were in varying stages of lockdown with conditions of X-ray or Zulu meaning gale force winds were expected or imminent. The Port of Corpus Christi is the top U.S. crude oil export port.
Refining, Oil Prices
The extent of damage to oil and gas infrastructure remains unknown, but information so far points to sizeable refining disruptions, said Goldman Sachs analyst Damien Courvalin in an Aug. 28 report.
As of August 27, nearly 3 MMbbl/d of refinery capacity was offline — about 16.5% of the nation’s 18.2 MMbbl/d capacity.
“Should these levels of outages remain in place, and using past hurricanes as proxies for the impact on oil demand, we roughly estimate that the impact of Harvey on the U.S. oil market would be to increase omestic crude availability by 1.4 MMbbl/d,” Courvalin said, adding that up to 785,000 bbl/d of gasoline and 700,000 bbl/d of distillate supplies could be offline.
“The loss of USGC refining capacity will further support refinery margins for non-affected refiners to incentivize them to operate at higher utilization,” Courvalin said. “The hurricane will however lead to a weakness in domestic crude prices given the lack of refining outlet.”
Andrew Fletcher, senior vice president of commodity deravtives for KeyBank National Association, said crude traded lower with “focus on refinery outage and crude demand by implication rather then crude outages. Natural gas managed to close modestly higher with a positive bias down the curve.”
Harvey’s movement east risks creating further refinery outages of up to 850,000 bbl/d of capacity in Houston not yet reported offline.
Exxon Mobil said Aug. 28 that its Baytown complex completed the safe shutdown of most of its operations while its Beaumont refinery has reduced rates due to the closure of the Houston Ship Channel.
“The four refining units in the greater Corpus Christi area remain offline,” said Roger D. Read, a senior analyst at Wells Fargo Securities. “Based on media and company reports and the path of the storm (just north of Corpus Christi) damage is light. Power must be fully restored and the port must reopen before the units will be restarted – likely a 7-10 day process in our view.”
In the Houston area, at least four units are reported to have begun or completed controlled shutdowns with several others reported to be operating at reduced rates. Including condensate splitters, we estimate 2.5-3.0 million barrels per day of refining capacity is offline. That represents just over one-quarter of Gulf Coast capacity and about 15% of U.S. refining capacity.
Petrochemical company TPC Group said severe rain and flooding impacted its Houston facility, which is stable but not operating. “The facility has power and steam, but floodwaters have impacted electrical equipment,” the company said Aug. 28. “Even though floodwaters are currently receding, we continue to prepare for the risks posed by additional heavy rain forecasted for the area.”
Several energy companies have pledged aid to help people affected by Harvey.
Before the storm had hit Texas, Exxon Mobil said it would allocate $500,000 to the regional Red Cross organizations along the coast to assist with relief efforts.
Anadarko Petroleum said it would contribute $1 million to the United Way disaster relief fund.
Chevron Corporation (NYSE: CVX) said Aug. 28 that it will make a $1 million contribution to the American Red Cross for immediate relief efforts to assist victims of the hurricane.
BP Plc (NYSE: BP) and the BP Foundation will donate $750,000 to support flood relief efforts in Houston and surrounding Texas communities to the American Red Cross, Community Foundation of Greater Houston and United Way of Greater Houston. The company said $250,000 will go to each organization.
Tudor, Pickering, Holt & Co. said it will donate half of its trading commissions to Harvey relief and recover efforts in the Houston area.
Darren Barbee can be reached at firstname.lastname@example.org.
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