Harvey Knocks Out More Refineries, Shifting Global Oil Flows

Flint Hills Resources oil refinery near downtown Houston
The Flint Hills Resources oil refinery near downtown Houston on Aug. 29, 2017. (David J. Phillip/AP)

DALLAS — Hurricane Harvey is sending pump prices higher for U.S. motorists and causing temporary shifts in the flow of oil and gasoline around the world after taking down a huge chunk of U.S. refining capacity.

It will be days or even weeks before the energy sector in the southeast Texas Gulf Coast is back to normal operations as it deals with flooding in the aftermath of Harvey, which has been downgraded to a tropical storm. The region from Corpus Christi, Texas, where Harvey made landfall, to the Louisiana state line accounts for about 3% of the U.S. economy and is a crucial export market for oil and chemicals.

Aug. 30 brought news that the nation’s biggest refinery, which was already running below half-speed, had begun a complete shutdown. The Motiva Enterprises plant in Port Arthur, Texas, run by a unit of the state-owned oil company of Saudi Arabia, was the latest domino to fall among Gulf Coast refineries.

More than one-fifth of U.S. refining capacity has been shuttered, according to S&P Global Platts.

TRUCKING STOCKS CLIMB: High demand expected for cleanup

TRUCKER RESCUED: Driver pulled from his cab as floodwaters rise on Beltway 8

VOLUNTEERS JUMP IN: Fleets saved the stranded, delivery supplies by boat

FEDERAL FUNDS: FHWA gives $25 million to Texas relief

SUSPENDED DELIVERIES: FedEx Freight, Express service curtailed

HARVEY'S IMPACT: Oil, gas prices and overall economy to be affected 

With that, gasoline futures headed higher for a third straight day. They had climbed 10 cents to $1.88 a gallon Aug. 30.

Retail gas prices climbed, too, up 2 cents a gallon on Aug. 30 and 7 cents in the past week, to a national average price of $2.42 per gallon, according to GasBuddy.

“In terms of product price increases, it might get worse before it gets better,” said Rob Smith, an energy analyst with IHS Markit.

It could take two weeks or longer before big refineries in the Houston area can recover from a record-setting deluge and resume normal operations. That assumes they didn’t suffer serious damage, which is still unknown.

State officials say floodwaters from Harvey toppled two oil storage tanks in south Texas, spilling almost 30,000 gallons of crude.

Burlington Resources Oil and Gas reported the spills in DeWitt County to the Texas Railroad Commission on Aug. 30. They include a 16,170-gallon (385 barrels) spill near the town of Westhoff and a 13,272 gallon (316 barrels) spill west of Hochheim. That’s an area about 150 miles west of Houston.

It was not immediately clear if any of the spilled oil was recovered. About 8,500 gallons (200 barrels) of wastewater also spilled.

Burlington Resources is a subsidiary of ConocoPhillips. Company representatives did not immediately respond to telephone and email messages seeking comment.

More damage to oil industry infrastructure is expected to emerge as floodwaters recede.

Harvey isn’t the first big storm to hit the refinery-rich Gulf Coast, but the oil industry has undergone big changes since the last major interruption from Hurricane Ike in 2008.

The so-called shale revolution has led to a surge in oil production in the U.S., increasing the nation’s exports of crude oil and gasoline to Mexico and other places in Latin America, and diesel to Europe.

When the U.S. can’t produce enough gasoline or diesel to meet export demands, other regions are forced to look for replacement supplies “and the backfill has to come from further away,” said Richard Joswick, an analyst with S&P Global Platts. “It has to come from Asia even.”

The result will be higher prices, but it should be just a one- or two-week problem, Joswick said.

Patrick DeHaan, an analyst for GasBuddy, predicts that U.S. gasoline prices will top out around $2.50 or $2.55 a gallon, an increase of up to 20 cents since Harvey hit, with bigger spikes closer to the Gulf.

The recovery from Harvey will mimic the storm’s path from west to east. Flint Hills Resources’ refinery in Corpus Christi, where Harvey made landfall as a Category 4 hurricane, could begin to restart — a process that takes days — very soon. Other refineries in the area are likely to do the same later this week.

“It takes some time to start up a refinery under normal circumstances, and it wouldn’t be surprising if they run into hiccups,” said Smith, the IHS Markit analyst. “It could be a week if not longer before Corpus Christi is at normal operations.”

Exxon, Shell and other companies have reported to Texas regulators that some of their storage tanks and other facilities near Houston were damaged by the torrential rains and flooding. Most of the reports seem to indicate relatively minor damage, but still it could be days before crews can assess matters and make repairs.

Even once the refineries are running, pipelines and ports are needed to carry their gasoline, diesel and other fuels to consumers.

A major pipeline supplying the East Coast with gasoline remains shut down — partly because with refineries closed, there is nothing to ship, but also because of damage in at least three areas. Another pipeline that carries crude from the big Permian Basin field in Texas to Houston-area refineries is also closed.

Other sectors are also slowly emerging from Harvey’s mess:

SHIPPING: In a hopeful sign, port officials in Corpus Christi say that an initial check turned up some damage from Harvey’s landfall over the weekend, but they hope to restart shipping on Sept. 4. First, however, the Coast Guard will have to declare the shipping lanes clear, and boat pilots will have to be satisfied it’s safe.

All four ports in the Houston area remain closed and aren’t likely to reopen for several days.

TRAVEL: Houston’s two airports resumed limited service late Aug. 30.

United Airlines planned to operate three departures and three arrivals Aug. 30 at Bush Intercontinental Airport, a spokesman said. Other carriers, such as American Airlines, planned to wait until Aug. 31. At Hobby Airport, Southwest Airlines, the dominant carrier, doesn’t plan any flights before Sept. 2, according to a spokeswoman.