Crude Oil, Refining and Chemical Sector Impacts
IHS Markit is releasing periodic updates on the impact of Tropical Storm Harvey on the crude oil, refining and chemical sectors. A summary of the latest update (as of end of day Wednesday, August 30) follows below.
- As of Wednesday, US Gulf of Mexico operators have shut down approximately 324,000 b/d of crude oil output, equal to around 19% of total Gulf of Mexico production. In addition, about 0.61 Bcf/d of natural gas output was shut in, or about 19% of Gulf production.
- Perhaps the biggest issue in terms of recovery is the interconnected nature of the Gulf energy industry. Even if crude production can recover quickly without lingering damage, producers will have trouble moving their crude if refineries remain offline or if ports are slow to reopen, or if key pipelines remain down. Likewise, refiners that are undamaged may have difficulty sourcing crude if the ports remain closed.
- There is still considerable uncertainty about any lingering damage to offshore platforms and the extent of flooding damage to onshore oil production. There is no official estimate of Eagle Ford volumes impacted, although estimates are that perhaps 300,000 b/d of production was shut in in advance of the storm.
- The Eagle Ford produces about 1.3 MMb/d, or 14% of all US crude oil output. Given that large-scale shale production is a relatively recent technology, it is not possible to determine yet whether there will be any permanent production impact to the wells once they restart.
- The port of Corpus Christi sustained some damage but is working to resume normal operations by September 4. Corpus Christi is a key port for exporting US domestic light crude such as WTI and Eagle Ford. The ports of Houston, Galveston and Freeport are closed, with no firm timetable for reopening. These ports are critical for moving imported crude to the region’s refineries (especially heavy crude) and also for crude exports. US crude exports have averaged over 900,000 b/d year-to-date, and are almost entirely sourced out of the Gulf.
- Tropical Storm Harvey has now officially moved on from Texas, but floodwaters remain and the refining industry is still reeling.
- The total amount of distillation capacity confirmed offline is now 3.3 million b/d, up from 2.0 million b/d on Tuesday. Another 2.2 million b/d is either presumed idle, operating at severely reduced rates, or still under imminent threat. Together, the affected facilities represent over 30% of US refining capacity.
- Corpus Christi, despite taking the brunt of Harvey’s initial landfall, is currently faring the best. Flooding was far less severe in Corpus Christi and active recovery has been underway for a couple days. The region’s four refineries, which collectively represent around 4.5% of US distillation capacity, are all looking to begin restart operations this week. The Port of Corpus Christi also expects to partially re-open by the end of the week and resume “normal operations” by September 4.
- The news is far more uncertain in Houston, where floodwaters may continue to rise today despite an end to the rain.
- Five of the city’s nine refineries, representing 7.2% of US distillation capacity, are officially confirmed to be offline. The other four (another 6.2% of US distillation capacity) are almost certainly operating at reduced rates, if not completely idled.
- So far, no Houston refineries have reported significant damage, but a full reckoning of the storm’s impact is simply not possible until the waters recede and recovery begins. All four Houston area ports remain closed Wednesday, and will not likely re-open before Friday.
- Further east, the Beaumont-Port Arthur-Lake Charles refining hub is also now dealing with catastrophic flooding. Three of this region’s seven refineries, including the country’s largest plant, are now officially offline. The other four are reportedly operating at severely reduced rates.
Natural Gas Liquids (NGLs)
- There has been widespread effects on supply, demand, exports, and pricing of NGLs. Gas plant supply is expected to fall temporarily due to the hurricane as fractionation operations were curtailed during the storm.
- Enterprise Products Partners released an update on Aug. 28 on operations affected by Harvey. “At Enterprise’s Mont Belvieu, Texas facility, four of its eight NGL fractionators, three of its six propylene fractionators and storage facilities are in service or limited service. The main impacts of the storm at Mont Belvieu have been rising water and loss of power," it said.
- Loss of power is a factor in other operational curtailments for Enterprise. “In South Texas, two of Enterprise’s eight natural gas processing plants, including its largest plant, Yoakum, are in service. The remaining six natural gas processing plants and the Shoup NGL fractionation facility are currently not in operation due to the effects of the storm, including loss of power, loss of third party services, minor damage and/or the level of natural gas production." But it added that overall its natural gas, NGL and crude oil pipelines serving South Texas and the Eagle Ford Shale are in commercial service.
- ONEOK shut its fractionators at Mont Belvieu and information is not yet available on whether they have returned to service.
- Among other Mont Belvieu operators, a spokeswoman for Energy Transfer Partners (ETP), parent company of Lone Star NGL, said there was "no major damage to report" at its facilities and there has been "minimal impact on our operations."
- Targa reported impacts on Aug. 29 saying that damage to date to Targa facilities has been minimal, that disruptions to operations are expected to be limited and that normal operations will resume shortly after flood waters recede.
- Conditions associated with continued flooding in the Houston area, and specifically the area of Targa's facilities in Mont Belvieu, Texas, which include the Cedar Bayou Fractionator (CBF), today required CBF to be temporarily taken out of service. Fractionation operations should be able to resume quickly once water recedes and operation of the freshwater supply wells is restored.
- Flooding of the brine disposal pumps at Targa's Mont Belvieu terminal has also impacted the facility's capacity for receiving raw products, Targa said. The group were utilizing their storage position and working with pipeline operators to manage natural gas liquids receipts at lower volumes than normal.
- Crestwood issued a force majeure update on Aug. 28, saying it expects its Tres Palacios Gas Storage facility to remain closed through Aug. 31.
- Force majeures were still in effect as of Aug. 28 on several pipeline systems, including: Natural Gas Pipeline’s (NGPL) segment 23 of the Louisiana Line in Cameron Parish, La; the Kinetica Energy Express Grand Chenier System due to a mandatory evacuation of lower Cameron Parish, La.; and Kinetica’s Sabine System, also due to the Cameron Parish evacuation. NGPL updated on Aug. 29 that compressor stations 302 (Montgomery County, TX.), 342 (Cameron Parish, La.) and 343 (Liberty County, TX) were still unavailable.
- Refinery supply of NGLs was also impacted by Hurricane Harvey. Refinery production of NGLs is responsible for approximately 20% of total US supply. PADD 3 is responsible for approximately 50% of refinery supply of NGLs.
- NGL export capacity was also affected by the storm. Phillips66 temporarily suspended operations on Aug. 25 according to a notice on the company’s website. Phillips noted that this is due to the closure of the port of Freeport, and added that its "other assets in the Gulf Coast region continue to operate while implementing their hurricane preparation plans."
- Additionally, operations at Enterprises’ Morgan’s Point terminal have been affected by the storm. The ethane terminal was put out of service and is capable of 200,000 b/d of exports.
- Targa's Galena Park Marine Terminal is not in service as the Houston Ship Channel has been closed to ship traffic since August 25th. Resumption of operations at Galena Park is dependent on the Coast Guard reopening the Houston Ship Channel and inspection of the pipelines between Mont Belvieu and Galena Park.
- Ethylene – The amount of confirmed outages has increased, pushing the percentage of total US ethylene production offline to 43% and total US ethylene consumption capacity to 31%. As of the time of this writing, no ethylene production units have been confirmed to be offline in Louisiana, although unconfirmed reports point to supply chain constraints and storage issues. It may take weeks for the overall ethylene market to approach pre-Hurricane production levels.
- Propylene – The amount of confirmed PGP/CGP assets offline has increased to 34% of the PGP/CGP and 28% of the RGP supply. Another 6% of PGP/CGP supply and 1% RGP supply is suspected down as well. Approximately 92% of the total US production for PGP/CGP lies in the potentially affected regions along the Texas and Louisiana coastline. Likewise 88% of the total propylene equivalent consumption capacity based on PGP/CGP feed also lies within the potentially affected zone.
- Polyethylene – IHS Markit calculations suggest that approximately 45% of US PE production capacity is currently offline as a direct result of Hurricane Harvey. Logistical constraints are further complicating matters as many of the affected facilities have little or no ability to ship any product that could be produced. US producers export approximately 420 KT of PE per month and it is this supply that is expected to be significantly curtailed in the near term.
- Polypropylene – Approximately 60% of North American PP production could be currently offline. IHS Markit currently expects rail car shipments on average will be delayed up to two weeks from when the storm hit which means supplies would potentially start to recover sometime the week of September 11th. However, this is only an estimate and could change as more details emerge.
- Benzene – Spot benzene prices have been volatile, jumping up as high as $2.75 per gallon on Monday before falling sharply on Tuesday to as low as $2.65 per gallon. The market has stabilized momentarily at under the $2.70 per gallon level. The loss of production has largely been offset by derivatives being shut down or running at reduced rates as inventories are drawn down.
- Toluene – Toluene prices have firmed but chemical demand is tempered by derivative units also being affected. Gasoline and reformate prices are spiking, with RBOB up nearly 30% over the last week. Reformate was up to $2.30 per gallon and that will impact commercial grade toluene. Blend values have increased to over $2.20 per gallon and that will lead to refiners using toluene for gasoline as production returns.
- Mixed Xylenes – Mixed xylenes prices are increasing but production from Lake Charles and imports from Europe should soften prices by next week. The mixed xylenes will be needed for solvent demand and PX units as they restart over the next two weeks. Imports are expected to be moving from Europe, up to 10kt this week.
- Para-xylene – PX production in Texas City is dependent on the operation of Marathon’s Galveston Bay refinery. An initial decision yesterday to shut down the refinery was reversed today as the opening of the port appears to be near. Product can’t move from Corpus or Houston, for the time being, with a PX unit in Pascagoula unaffected to this point. The consumers will need to run on inventory or imported material until production/shipments are resumed. Volume is expected to move from EU to the US, up to 20kt.
- Chlor Alkali/Vinyls – As of Wednesday August 30, 25% of US PVC capacity remains offline due to severe impacts from the hurricane, mostly flooding but also supply disruptions of upstream feedstocks. The duration of these supply interruptions is uncertain at this time.
- Methanol – Current estimate is that 14% of US formaldehyde capacity is affected. In acetic acid, 83% of US capacity is in the affected area. For methanol, 45% of US capacity is in the affected area.