The biggest fears for Texas refiners in the path of Hurricane Harvey: floods and power outages.
Harvey is forecast to become a Category 3 storm by the time it slams into the Texas coast late Friday. A storm surge of as much as 12 feet may bring salt water pouring into coastal terminals and refineries, while as much as 25 inches of rain in the next week may keep facilities flooded for days.
Bloomberg’s Joe Carroll takes a look a Hurricane Harvey’s potential impact on oil prices.
The Gulf Coast is home to almost half of the nation’s refining capacity. What can refiners do to minimize the risk? Some are slowly bringing their plants down in advance, to avoid the sudden shutdowns resulting from flooding and power losses that can wreak havoc in delicate equipment holding large volumes of flammable chemicals.
"It’s not a predictable event," said John Auers, executive vice president at energy consultant Turner Mason & Co. "That’s why some do take the precaution of shutting down completely."
Storage tank farms, groups of huge cylinders containing crude oil, gasoline, diesel and other compounds, are at risk from flooding as well. The tanks themselves can buckle or even float away if flooding gets bad enough.
In an attempt to minimize potential damage, operators may fill up tanks so they stay put in several feet of water, Auers said. It’s a risk to operations even though "it usually drains out pretty quickly." Any maintenance work needs to be put on hold, he said.
5 Million Barrels
Gulf Coast refineries in the path of the storm process almost 5 million barrels of oil a day. About 1 million barrels a day of crude and condensate refining capacity in Texas has been shut down by companies including Valero Energy Corp., according to company statements, government releases and people familiar with the situation. About 10 percent of Gulf of Mexico oil production has also been shuttered.
Royal Dutch Shell Plc shut output and secured its Enchilada Salsa asset in the Gulf in response to downstream constraints created in preparation for Hurricane Harvey, the company said on Thursday.
Whether to shut down, completely or partially, is a judgment call, Auers said. Restarting operations can be more cumbersome than staying open through a storm, depending on its severity. The plants themselves are built to withstand wind and storm surges, he said.
After a Category 3 hurricane, it can take two to three weeks for operations to go back to normal, according to Andy Lipow, president of consultant Lipow Oil Associates LLC in Houston. That’s due to the combination of wind damage, power outages and flooding. It can also be difficult to get workers back to the facilities if the storm has left much more widespread damage in its wake.
The most important factor is having enough emergency personnel standing by if something does go wrong, Auers said. Though he doesn’t expect Harvey to shut down operations for long, companies can’t afford to be complacent about having their emergency systems in place, he said. They’ve learned from experience with past storms, such as Katrina and Ike.
"They’re ready for it," he said. "Just have to wait and see."