Dunkirk In Houston
Watching the widespread devastations in Houston due to what was Hurricane Harvey, has been gut wrenching and now that this storm has regenerated and made a second landfall in Louisiana, just west of the town of Cameron, its impact on lives and property is just starting to be measured. Ordinary citizens in Houston have been heroically rescuing their neighbors with their own boats reminds me of the beach rescue in Dunkirk when ordinary citizens, with their boats, saved the British army and changed the course of history. Despite the challenges and devastation in Houston and the pain, this will prove to be their finest hours.
The impact on energy and the economy is also just beginning to be felt as the fall out from the storm damage is just beginning to be measured. Right now, the market focus is the impact on US refineries and the shutting down of transportation pipelines. Yet they will also have to deal with the very real possibility of considerable damage to oil and natural gas producing infrastructure as well as damage caused to Eagle Ford Shale fields.
Gasoline RBOB Futures are on the rise for the seventh day in a row as it has been confirmed that the Colonial Pipeline is running at reduced rates, raising the real possibility of gas and diesel and even jet fuel shortages. Colonial Pipeline Co. said Tropical Storm Harvey affected its Houston origin, which includes Pasadena, Houston, and Cedar Bayou. Service from those locations was interrupted during the storm and its aftermath, although the company is working to restore service and minimize the impact. Still reports that flow was down by as much as 60% is feeding into that gas and diesel rally.
The Wall Street Journal says that the:
Colonial is the biggest fuel pipeline in the U.S., stretching 5,500 miles through 12 states.
Analysts have likened it to “a Mississippi River of fuel.” It can transport up to 2.5 million barrels a day of gasoline, diesel and jet fuel, and is directly connected to several airports, including Nashville, Charlotte and Dulles International Airport in Washington, D.C. The pipeline, which was built in 1963, is a main source of fuel for the Southeast, including offshoots to parts of northern Florida. It ends in New Jersey and is also a massive supplier of fuel to the greater New York City metro area.
The Wall Street Journal also reported that the nation’s largest refinery in Port Arthur, Texas, curbed fuel output to 40% Tuesday due to severe weather. That 600,000-barrel-a-day plant was taking on water in some areas, its primary problem wasn’t getting all the oil it needed to make fuel because of port and pipeline closures, according to its owner, the Saudi Arabian Oil Company.
Other refineries are shut, not due to damage, but because they cannot get crude. Bloomberg News reports that Marathon Petroleum Corp (NYSE:MPC).’s Galveston Bay refinery in Texas City, with a capacity of 451,000 barrels a day, may be forced to halt production within several days because it is running out of crude, a person familiar with operations said on Monday. Its oil comes via Magellan Midstream Partners LP, which suspended use of its pipeline in the area on Sunday. That pipeline is one reason gas prices in the Midwest are already spiking.
Shale oil producers can’t mover crude but there are also issues as to whether they can raise production to previous levels in the Eagle Ford after the storm may have changed the liquid make up of some of the reservoirs.
The Wall Street Journal writes:
The storm’s widespread devastation has come into focus, several analysts say that much, if not most, of the 1.4 million barrels of oil produced daily in the Eagle Ford shale of South Texas has been cut off and may not return for weeks. The Eagle Ford, which is on the doorstep of Corpus Christi where the storm made landfall, is second in output in the state only to the Permian Basin of West Texas.
The shipping traffic in Houston, Corpus Christi and other ports may not be fully restored for two weeks. That and other infrastructure limitations will have a domino effect back to production, said Tony Sanchez III, chief executive of Eagle Ford operator Sanchez Energy Corp. Restarting wells may not guarantee that they resume flowing at the same rate, he said. On a technical level, he fears that shale wells, once shut off, could lose pressure. Most of his company’s production wasn’t shut in as it lies in areas west of the storm’s path.
He said:
It’s not just a matter of flipping a switch. There is significant risk in those wells not coming back to previous levels.
The Journal says that the market may be underestimating Harvey’s impact because nothing like this flood has ever happened to the shale industry before, said Giovanni Satnav, a commodities analyst at UBS Wealth Management.
At this point the focus is on products. Yet we could have production issues on gas and oil that could be a big deal when we start to run crude. Refining margins are surging and we should continue to see the speed from Brent to WTI widen. Yet in a few weeks it could reverse.
The American Petroleum Institute (API) reported crude draw: (5.78 mm) Gasoline: +0.476 mm 19.1% Distillate: (0.486 mm) Cushing: +0.582 mm.
The BSEE Hurricane Response Team continues to monitor Gulf of Mexico oil and gas activities. Based on data from offshore operator reports submitted as of 11:30 CDT testerday, personnel have been evacuated from a total of 102 production platforms, 13.84 percent of the 737 manned platforms in the Gulf of Mexico. Production platforms are the structures located offshore from which oil and natural gas are produced. Unlike drilling rigs, which typically move from location to location, production facilities remain in the same location throughout a project’s duration. Personnel have been evacuated from five rigs (non-dynamically positioned (DP) rig), equivalent to 50 percent of the 10 rigs of this type currently operating in the Gulf. Rigs can include several types of offshore drilling facilities including jackup rigs, platform rigs, all submersibles and moored semisubmersibles.
From operator reports, it is estimated that approximately 18.26 percent of the current oil production of 1,750,000 barrels of oil per day in the Gulf of Mexico has been shut-in, which equates to 319,523 barrels of oil per day. It is also estimated that approximately 19.1 percent of the natural gas production of 3,220 million cubic feet per day, or 615.09 million cubic feet per day in the Gulf of Mexico has been shut-in. The production percentages are calculated using information submitted by offshore operators in daily reports. therefore are estimates, which BSEE compares to historical production reports to ensure the estimates follow a logical pattern.