OGE Header

Keeping an industry above water

Changes in oil and gas production over the last decade have allowed the economy to weather a storm such as Hurricane Harvey with minimal changes in price.

10/08/2017


When Hurricane Harvey slammed into Texas as a Category 4 hurricane on the night of Friday, August 25, it shut down 10 oil refineries that process up to 2.2 million barrels of crude oil annually into products like gasoline. Following other recent hurricanes, prices peaked within two weeks after landfall at a level of 20 cents to 80 cents per gallon higher, according to PIRA Energy, an analytics unit with S&P Global Platts.

The United States is the world's top oil and natural gas hydrocarbons producer. It has been the top producer of natural gas since 2009 and the top producer of petroleum hydrocarbons since 2013, the U.S. Energy Information Administration says. In fact, oil production in the U.S. doubled from 2008 to 2016.

This rapid capacity expansion goes a long way in explaining Harvey's muted impact on gasoline prices, as it has been possible to redirect gasoline exports to American markets, according to The Christian Science Monitor. This is true even though, while the U.S. has the world's largest refining capacity, just under half of this capacity is concentrated in Texas and Louisiana. 

Changed landscape

In fact, about one-third of the country's refining capacity is located between Lake Charles, La., and Corpus Christi, Texas. The Houston area is home to refineries that include the Marathon Galveston Bay, Phillips 66 Sweeny, Exxon Beaumont, LoyondellBasell, and Motiva. Many have reported reduced capacity following the hurricane. Harvey caused about 25% of the country's refining capacity to shut down.

On the production side, By August 27, according to the Interior Department's Bureau of Safety and Environmental Enforcement, about 22% of the oil produced in the Gulf of Mexico was shut down. Oil producers in the Eagle Ford Shale region halted some operations. In the wake of the storm, gas futures jumped as much as 7%.

Partly due to a lack of supply from refineries, major regional pipelines such as the Magellan shut down while the Colonial and Explorer pipelines operated at reduced rate, reported OilPrice.com.

Despite the disruptions constraining flows of resources across the United States that led to a surge in oil and gasoline prices, the latter have already begun to stabilize.

Harvey had limited impact on natural gas markets. Experts say prices have increased only 4%. This explains the Gulf of Mexico's share in American gas production fell from 25% to 5% as shale gas production has shifted to other parts of Texas and to the Appalachian Basin in the Northeast, according to OilPrice.com.

Flotsam and jetsam

From Aug. 23 to Aug. 30, 46 facilities in 13 Texas counties reported an estimated 4.6 million pounds of airborne emissions that exceeded state limits, according to an analysis by the Environmental Defense Fund, Air Alliance Houston, and Public Citizen. Federal and state regulators say their air monitoring shows no cause for alarm.

At least 14 toxic waste sites were flooded and damaged, raising fears of waterborne contamination. Nearly 100 spills of hazardous substances have been reported, said The New York Times.

Kevin Parker, senior contributing editor, Oil & Gas Engineering, CFE Media, kparker@cfemedia.com.



click me
click me