The Gulf Coast and Houston are in our prayers as they face unprecedented challenges in the aftermath of Hurricane Harvey. Hurricane Harvey, the strongest Texas hurricane in 50 years, brought record rainfall and unprecedented flooding. It may take years for the area to recover and it is going to be a historic challenge for the U.S. energy sector. The storm has shut about 15% of U.S. refining, cutting fuel-making capacity output by an estimated 2.2-2.7 million barrels a day. 

The National Hurricane Center said that this event is unprecedented and all impacts are unknown and beyond anything experienced. That also means that the heart of the U.S. energy industry will face challenges unlike anything they have seen and it could be months or years before we get back to normal. This comes as Hurricane Harvey could regain strength and the possibility of another storm in the Gulf of Mexico next week.

The Houston Shipping Chanel is still closed and so even if some refiners come back on line, they can’t move product. This drove RBOB gas futures to a two-year high and diesel prices spiked as well. Gas shortage fears are driving retail prices and there are warnings about price gouging to retail stations by the oil companies. We know that the market is reacting to that but this is going to change as more news comes in.   

West Texas oil futures fell as the market expects that refineries will demand less oil as they take weeks, maybe longer, to come back on line. Brent crude, on the other hand, stayed stronger as the U.S. will demand product from Europe as well as some shut down of Libyan oil production over the weekend. With more rain expected and the possibility that Hurricane Harvey could strengthen again the impact on the U.S. energy sector will be unprecedented.

The effect on production and refining is big. The Wall Street Journal reports that Exxon Mobil Corp. closed its Baytown refinery, located on the Houston Ship Channel, when floodwaters paralyzed large portions of the area. The plant is the second-largest refinery in the country, processing as much as 560,000 barrels of oil a day and feeding fuel into pipelines and barges that move it across the southeastern U.S. and up the East Coast. 

Reuters reports that Texas is home to 5.6 million barrels of refining capacity per day, and Louisiana has 3.3 million barrels. More than two million barrels per day (bpd) of refining capacity were estimated to be offline because of the storm. To avoid a fuel shortage, U.S. traders were seeking oil product cargoes from North Asia, several refining and shipping sources told Reuters on Monday. About 22 percent, or 379,000 bpd, of Gulf production, was idled due to the storm as of Sunday afternoon, according to the U.S. Bureau of Safety and Environmental Enforcement. There may also be around 300,000 bpd of onshore U.S. production shut in, according to Reuters. There is no word on how the flooding will impact futures shale output as the Eagle Ford area is flooded in many areas.

Colonial Pipeline that takes gasoline and diesel up the East Coast is still operating. Valero Energy Corp. said its two refineries in the Corpus Christi area that were shut before Harvey came ashore Friday didn’t sustain much damage, so the company was looking for a way to restart operations. Bringing them back also requires the port to be functional. Valero didn’t estimate when the two plants would go back into service.

According to the WSJ, there is enough gasoline in storage to cover 23.7 days of demand, compared with 20.5 days in the weeks before Katrina, according to the U.S. Energy Information Administration. East Coast storage tanks hold more than 63 million barrels of gasoline, a supply of more than two weeks, compared with about 52 million before Katrina. The global impact of Harvey could be more dramatic. Gulf Coast refineries have become more important suppliers of fuel around the world in recent years, with 17% of the gasoline and 39% of the diesel generated in the region sold to overseas buyers, according to consulting firm Turner, Mason & Co.

The Bureau of Safety and Environmental Enforcement (BSEE) reported yesterday that data from offshore operator reports submitted as of 11:30 CDT today, personnel have been evacuated from a total of 105 production platforms, 14.25 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.