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Oil and gas

Harvey’s impact on the oil & gas industry

Harvey's havoc spreads beyond the Gulf Coast, due to flooded refineries, stopped pipelines and other energy sector disruptions.

Hurricane Harvey is on track to be the most devastating hurricane to strike the U.S. in years. Its impact on Houston, one of the world’s epicenters of oil and natural gas production, could send a ripple through energy markets worldwide, extending Harvey’s reach well beyond the Gulf of Mexico.

The making of a hurricane

When Harvey made landfall on Texas’ Gulf Coast Aug. 25, it became the first Category 3 or higher storm to strike the U.S. mainland since Hurricane Katrina hit the New Orleans area in 2005. Harvey, which has resulted in 60 deaths and the displacement of some 1 million residents, is expected to be the most impactful storm since Hurricane Isaac, which weakened below Category 3 before it hit Louisiana in 2012.

Hurricane Harvey - Thomson Reuters Eikon map - Aug 29
Source: Thomson Reuters Eikon as of 29th August @ 19:10 UTC

The Gulf Coast is frequented by tropical storms this time of year, but many don’t develop into hurricanes, and even then, not all of those that do become hurricane cause extensive damage.

Harvey is going to be different.

According to Thomson Reuters Weather Research, Harvey rose to a Category 3 storm due to a brew of storm-nurturing conditions, chiefly:

  • Warm strong sustained winds
  • Low vertical wind shear
  • High atmospheric humidity

According to the Thomson Reuters Weather Research Tropical Outlook Report issued Aug. 30, Harvey has produced the most rainfall for any US tropical system in history. The area just east of Houston has been drenched with 52 inches since Harvey struck, causing extreme, severe flooding and leading to evacuations. Texas Gov. Greg Abbott has said the state needs US$125 billion from the federal government. If granted, that would be the largest disaster aid package in U.S. history, overtaking the US$110.2 billion in federal aid awarded after Hurricane Katrina.

An oil tank damaged by Hurricane Harvey is seen near Seadrift, Texas, August 26, 2017. REUTERS/Rick Wilking

Short-term impact

As Harvey swept in from the Gulf of Mexico, it ravaged one of the busiest energy hubs in the U.S. In the two weeks since it landed, the short-term effect on the energy market has been surprisingly minimal.

At the time of this writing, natural gas production has dropped about 1.8 billion cubic feet per day, from 72.8 billion cubic feet per day pre-Harvey to 71 billion cubic feet per day, according to Jan Schulte, head of natural gas modeling at Thomson Reuters.

As a point of comparison, Isaac decreased production 5.4 billion cubic feet per day, from 65.8 billion cubic feet per day to 60.4 billion feet per day.

“The impact is now smaller, as Gulf of Mexico gas production has become less important over recent years due to declining volumes in the region and because of the increased importance of shale gas with its distributed production in many regions of the country,” Schulte said.

“Gas prices are not affected either, if anything, they are slightly down,” he added. “In general, it is fair to say that the natural gas sector is coping well with the hurricane and the impact of the storm on the gas market as a whole is at worst marginal.”

Hurricane Harvey - Thomson Reuters Eikon - Aug 31
Source: Thomson Reuters Eikon as of 31st August @ 08:00 UTC

Long-term impact

Fear that Harvey would bring winds fast and hard enough to damage oil infrastructure in the Gulf of Mexico has subsided.

However, the flooding caused by Harvey’s rainfall has caused significant problems for onshore facilities. Refineries in the Texas cities of Corpus Christi, Galveston and Port Arthur have experienced unplanned shutdowns. Pipelines have also been impacted; Colonial Pipeline, the biggest U.S. fuel system, said it would shut its main lines to the Northeast due to outages at pumping points and lack of supply from refiners. Flooding from Harvey has shut nearly a fifth of U.S. oil-refining capacity, triggering worries about a gasoline supply crunch.

In total, at least 4.3 million barrels per day of refining capacity, or over 20 percent of total U.S. capacity, are offline in Texas and Louisiana, based on company reports and Reuters estimates.

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