By Dan Molinski and Christopher M. Matthews
Several Houston-area refineries were shut down Sunday, taking
roughly 12% of U.S. fuel-making capacity out of commission, as
Hurricane Harvey continued to drench the city.
Exxon Mobil Corp. closed its massive Baytown refinery in a
Houston suburb -- the second largest in the U.S. -- as torrential
floodwaters from the storm paralyzed large portions of the
area.
The plant, located on the Houston Ship Channel, can process up
to 560,000 barrels of oil a day and feeds fuel into pipelines and
barges that move it from Texas to states across the southeast and
up the East Coast.
Royal Dutch Shell PLC confirmed it stopped making fuel at its
325,000-barrel-a-day plant in Deer Park, Texas, and Brazil's
state-controlled oil company, PetrĂ³leo Brasileiro SA, shut down its
Pasadena plant near Houston that can process up to 110,000 barrels
of oil a day.
The companies said they are assessing damage from the hurricane,
which has produced torrential flooding and spawned several
tornadoes. Even if the plants didn't sustain much damage, they
count on the Houston Ship Channel, a vital waterway for the U.S.
energy industry, to move imported crude oil into the state and
refined fuels out. It has been shut since Friday.
All the refineries in the Corpus Christi, Texas area that was
hard-hit by the hurricane are already closed, so the Houston plant
closures compound concerns about fuel shortages that could develop
in the coming days and weeks as the rain continues.
In all, more than 2 million barrels a day of fuel-making
capacity is down.
One bright spot: Valero Energy Corp. said its two Corpus
Christi-area refineries that were shut ahead of the storm didn't
sustain much damage, so the company is looking for a way to restart
operations, but bringing them back also requires the port to be
functional. The company didn't give an estimate as to when those
plants would go back into service.
While Harvey has been downgraded from hurricane status, the
storm continues to dump rain and spawn tornadoes as it moves
through the heart of the nation's oil infrastructure.
The Texas coast is home to nearly 30% of U.S. refining capacity
and Houston-area plants account for roughly half of that. Houston
is also the starting point of the Colonial Pipeline, a massive
fuel-moving artery that takes gasoline, diesel and jet fuel as far
north as New York. As of Sunday afternoon there were no impacts to
the Colonial pipeline's operations.
But Magellan Midstream Partners, which runs several oil and fuel
pipelines into and out of Houston, has suspended many of its
operations. Its refined petroleum pipelines carry gasoline and
other fuels into 12 Midwest states, from Oklahoma to Illinois.
The worst impact on the U.S. supply of gasoline and other fuels
may yet be to come. The Port Arthur region east of Houston is home
to four more big fuel-making plants that could go down. Harvey is
expected to linger over Texas until Tuesday, dropping another 15 to
30 inches of rain.
Markets were closed Sunday, but volatile trade is expected
Monday when they open. The U.S. has significant stockpiles of
gasoline and diesel in storage tanks around the country, which
should help blunt some of the supply impacts.
Long-term refinery outages could cause fuel shortages and drive
up the price of gasoline significantly around the U.S.
Concerns over the impact of refinery closures on U.S. fuel
supplies caused volatile gasoline prices in futures markets in
recent days. The actively traded RBOB October gasoline contract
price spiked nearly 10 cents a gallon on Wednesday and Thursday, to
$1.59/gallon. But on Friday, the price dropped back to $1.54/gallon
as some investors felt the hurricane impact on a still-oversupplied
market might be short-lived.
The Gulf Coast is the largest refining hub in the world and the
epicenter of U.S. gasoline production. The Texas portion of the
coast alone is home to more than 4.9 million barrels a day of
refining capacity, out of more than 19 million barrels overall,
according to the U.S. Energy Information Administration and
analysts.
Clint Follette, a partner at Boston Consulting Group, said
refineries in the storm's path that hadn't closed may have already
lowered capacity and reduced staff as they await a final decision
on the threat of flooding.
"Flooding can take a refinery down for a substantial period of
time," Mr. Follette said. "Inspection, repairs, getting things up
and running and restoring power, can be costly and time
consuming."
Harvey has also shut down several big offshore oil and gas
platforms in the Gulf of Mexico, with roughly 22% of offshore oil
production now stopped.
Past storms to hit the Gulf Coast, including hurricanes Rita and
Katrina in 2005, caused crude prices to rise between 4% and 6%.
During Katrina, gasoline prices soared by as much as 70 cents a
gallon in some parts of the country immediately after the storm,
while shortages lingered for days.
The last hurricane to hit Texas was Ike in 2008, when oil prices
were falling amid the financial crisis. Ike forced more than a
dozen refineries to close, largely due to flooding. Exxon Mobil's
Baytown refinery took more than a month to start up again. Ike did
less damage to refineries than Katrina but still caused prices to
spike by 30 cents a gallon in the Southeast.
Write to Dan Molinski at Dan.Molinski@wsj.com and Christopher M.
Matthews at christopher.matthews@wsj.com
(END) Dow Jones Newswires
August 27, 2017 14:57 ET (18:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Aug 2024 to Sep 2024
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Sep 2023 to Sep 2024