Crude Oil, Refining, U.S. Fuels Markets, Natural Gas, NGLs and Chemical Sector Impacts
IHS Markit (Nasdaq: INFO), a provider of critical information, analytics and solutions, 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 follows below (As of end of day September 7, 2017).
- There has been no material update to the Gulf Coast refining industry since yesterday.
- IHS Markit estimates that eight of the 20 refineries affected by Harvey are now operating at close to “normal” rates. Most of the other 12 are beginning restart procedures or are actively ramping up production.
- IHS Markit estimates that around 2.9 million b/d of distillation capacity (16 percent of U.S. total) is offline as of September 7. This is down from around 4.8 million b/d (27 percent of U.S. total) just one week ago. This total is expected to decline steadily during the next several days, falling to 1.8 million b/d (10 percent of U.S. total) over the weekend.
U.S. Fuels Markets
- U.S. gasoline prices continue to calm, across the futures and physical markets with values down about three to six percent from post-Harvey highs.
- Gulf Coast gasoline provided an exception to this national trend Thursday, but increases there were largely tied to scheduling deadlines.
- Diesel is performing in line with behavior documented after other summer and fall storms. Gulf Coast prices are again approaching yearly highs. An oddity is seen by virtue of Gulf Coast prices ascending above NY Harbor levels. A canvass of post-storm price behavior suggests that diesel prices will remain elevated long after gasoline prices recede.
- Historical precedent suggests that most of the post-Harvey gasoline price appreciation will give way to attrition in an active fourth quarter. Hurricane Irma has interrupted typical waterborne transportation in Atlantic Seaboard shipping lanes but the storm appears to be more of a threat to demand than supply. It would not be surprising this month to see EIA weekly assessments of gasoline demand fall to levels as much as 1-million b/d lower than some August weeks.
- The Southeastern quadrant of the United States is seeing some panic buying from consumers looking to evacuate coastal counties, as well as from residents worried about the ability to pump fuel after power outages inspired by heavy winds and storm surge. Exceptional demand on Florida stations has resulted in widespread station outages across the Sunshine state. Coastal dislocations could spread to Georgia and the Carolinas, depending on Irma’s path.
- Retail motor fuel price increases have stalled, thanks mostly to stable-to-lower spot and futures prices for gasoline, but also to difficulties associated with state of emergency rules and restrictions on pump prices. It now appears as though the peak of this storm-inspired price cycle will not be substantially above the $2.70 gal neighborhood.
- Jet fuel prices surged about 40cts gal following Hurricane Harvey’s havoc, to about $2 gal. Prices have subsequently given back about 8cts gal of the gains. Supplies were cut by refinery downtime but demand destruction related to cancelled flights has offset the lower production.
- Corpus Christi, the western most port impacted by Harvey, is open for vessels up to 43 foot draft while work is underway to the normal 45 foot draft limitation. In addition there are navigation restrictions although ocean going vessels are entering and exiting the port.
- Freeport is operational but still with a draft limitation of 38 feet as dredging continues.
- The ports of Galveston, Texas, Lake Charles, Louisiana and Texas City, Texas have resumed operations. Port Arthur is operating but with restrictions.
- The Houston ship channel is open but with restrictions on certain parts of the waterway. There is still no word if a sunken drydock partially blocking the upper channel has been removed.
- Draft restrictions on the Sabine pass waterway, the location of the only operating LNG export facility in the United States, eased yesterday with an allowed 34 feet compared to 30 feet on the prior day. LNG ships are now arriving at the Cheniere liquefaction plant.
- Railroads appear to have made significant progress in restoring service. BNSF Railway reports service restored to most of its system but expects an extended outage due to major bridge repair on a main route between Houston and Corpus Christi.
- BNSF and Union Pacific advise that they hope to restore service soon between Houston and Beaumont, which will allow resumption of a more direct connection to the Baton Rouge/New Orleans area. As operating conditions have improved, railroads have lifted most embargoes for shipments to, from, or passing through the Gulf region.
- Trucking capacity remains tight as motor carriers catch up on backlogs from a week-long disruption, many drivers and trucksare diverted to hauling relief and construction supplies, and traffic congestion reducing driver productivity.
- This week’s report from the U.S. Energy Information Administration (EIA) illustrates very clearly the impact that Harvey has had on the U.S. oil operations.
- U.S. roduction fell by 750,000 b/d from the previous week, while consumption of crude plummeted by almost 3.3 MMb/d, as refineries were forced to shut down.
- Crude oil exports also dropped sharply to just 150,000 b/d (they had been averaging about 900,000 b/d year-to-date).
- As a result of the sharp drop in refinery activity and exports, commercial crude oil inventories jumped 4.6 MM barrels. Next week’s report could show another inventory build as imported cargos, whose unloading was delayed by the storm, begin streaming in while refining capacity takes a bit longer to recover.
- Based in part on data and guidance from U.S. onshore operators—who are responsible for most of the growth in total U.S. crude production—we believe that U.S. production will rise further by the end of the year after this brief interruption.
- Hurricane Irma is not currently expected to threaten the Gulf Coast.
- Cheniere’s Sabine Pass LNG export facility has returned to service as ships have begun loading, marking the end of one of the lingering effects of Hurricane Harvey in the natural gas markets.
- LNG exports as recorded by Opis/Point Logic rebounded to above 1.0 Bcf per day (Bcf/d) for September 7, up from less than 0.2 Bcf/d two days prior. With ships lined up, continued growth in exports to 2.0 Bcf/d and above can be expected over the coming week.
- Demand has continued to decline, however, with the broad cooling trend in the eastern U.S., with the result that natural gas prices have barely budged over the course of the hurricane and its aftermath.
- Henry Hub cash prices have remained within a $.07 range, from $2.86 - $2.93 over the past week.
- Hurricane Irma remains on a path to potentially threaten the significant Florida natural gas market for a number of days. Florida natural gas demand for September under normal weather would be expected to average approximately 4.1 Bcf/d, or approximately 6.6 percent of the U.S. total.
Natural Gas Liquids (NGLs)
- The U.S. Energy Information Administration (EIA) published the first weekly propane/propylene inventory post Hurricane Harvey which showed a sharp increase in inventory due to curtailed exports and chemical demand as a result of the storm.
- U.S. propane and propylene supplies built by 6.3 million barrels over the week ended September 1, according to EIA's Weekly Petroleum Status Report, released at 11:00 ET Thursday morning. The build far surpassed the average 3.5 million bbl projected by respondents polled in OPIS' survey yesterday.
- Total inventories now stand at 79.9 million bbl, still some 19.4 percent below their total from the same week last year.
- Non-TET spot propane slid from 83.625 to 82.875cts/gal after the report's release and TETs fell from 83.875 to 83cts/gal.
- Conway propane took a bit of time to trade after the stats were published, but four spot deals were seen done in rapid succession about a half-hour thereafter, starting at 78.875cts/gal and running down to 78.375cts/gal.
- Ethane prices have recovered to pre-Hurricane Harvey levels as export and cracker capacity comes back online.
- According to the EIA statistics, total exports of propane and propylene, a significant topic of discussion in the aftermath of the storm, dropped to 191,000 b/d, falling 416,000 b/d, or 68.5 percent, from 607,000 b/d the week prior.
- Demand, also, inferred from EIA's products supplied figure, fell to 520,000 b/d from 1.214 million b/d the week before, a drop of some 57.0 percent.
- Total imports were 121,000 b/d, down from 139,000 b/d over the week prior.
- Refiner production of propane/propylene was reported at 1.497 million b/d, down 382,000 b/d, or 20.3 percent, week over week.
- Compared to previous hurricanes, Harvey was the first which hit the U.S. Gulf Coast after it has become the largest source of waterborne exports. The U.S. is now responsible for 33 percent of global waterborne NGL exports. Therefore, it was the first hurricane which effected global LPG prices with the differential between Mont Belvieu and Japanese propane increasing from $65/ton prior to the storm to $90/ton after.
- Ethylene – While the percentage of total U.S. ethylene production offline currently sits at 54 percent and total U.S. ethylene consumption capacity to 36 percent, a number of units have begun to restart operations. New ethylene units that were slated to come online over the next 6 months are expected to be delayed by a minimum of 30 days.
- Propylene – The amount of confirmed propylene production assets offline remains at 40 percent of the PGP/CGP with RGP supply offline to 21 percent. Another 16 percent of PGP/CGP supply and 5 percent RGP supply is running at reduced rates. Expectations are that at least half of the assets down at the peak of the storm impact will return online within seven days. Consumers of propylene (derivatives) are observing a stronger rate of recovery and now seem to be limited by propylene supply.
- Polyethylene – The supply disruptions associated with Hurricane Harvey are driving some changes in standard pricing practices. For example: PE producers typically provide their customers with 30 day advance notice of price increases because their customers generally require some time to move these increases downstream to their customers. As of this week, two major producers have announced they will raise contract prices by 4.0 cents per pound effective September 15 effectively providing less than two weeks’ notice of the price change.
- Polypropylene – We are now assessing that 90 percent of NAM capacity is back up or in “startup” mode. Unlike monomer units, PP plants are able to start up and reach full rates in a relatively short period of time. This number is expected to increase to over 90 percent by early next week and possibly higher. As we indicated yesterday, while plants are now running, the next obstacle is logistics and the ability to efficiently move product to customers. We typically estimate near 20 days for most rail car shipments and it is likely we will see extra days added in the near term.
- Benzene – Despite most of the Houston based refineries entering into restart, the market is not out of the woods yet. The prolonged refinery outages have already led to a number of Force Majeure announcements. One initial allocation of 40 percent is expected to further tighten the market in September. The benzene price pushed higher on the news and increased by about $0.05 per gallon. The market will be tightening over the next few weeks.
- Chlor Alkali/Vinyls – Facilities in coastal Texas continue making progress towards the recovery from the hurricane and regional flooding. Producers are cautiously optimistic about shipment timing and progress now that the railroads are slowly improving their operations.