When Hurricane Harvey made landfall on August 25 with devastating winds and record-setting rain, the toll on people, homes, and businesses—especially along the Texas coast—was staggering. The region’s oil industry was no exception.
The Gulf Coast region with its proximity to abundant oil supplies from Texas oil fields, not to mention imports from Mexico and Venezuela, accounts for nearly half of U.S. refining capacity. At one point during the hurricane, 17 Texas refineries either shut down or operated at reduced levels—with the net effect of knocking out, for a time, almost one quarter this country’s refining capacity.
But the refineries in Texas weren’t the only ones impacted by the mega-storm. Refineries elsewhere in the U.S. have also been indirectly affected. The reason has its roots in the fact that the demand for refined oil traditionally drops off near the end of the summer season, as vacation road trips come to an end. Refineries take advantage of this expected slowdown by scheduling, during that period, crucial maintenance or the installation of new equipment.
Hurricane Harvey upended that routine.
Several refineries located outside of Harvey’s path responded by sending workers to the affected areas to help with the cleanup and re-construction of refineries hardest hit. Exxon Mobil Corp, for instance, postponed seasonal maintenance at several of its refineries in order to divert resources—people, equipment—to restart its Beaumont and Baytown plants, both among the hardest hit. As a result, Exxon said, turnarounds at facilities from Louisiana to Montana have been delayed.
Exxon isn’t alone in this. Other refineries shifting their usual autumn “upkeep” activities to a later date include: Motiva Enterprises LLC in Port Arthur, Texas Phillips 66’s Sweeny refinery, Valero’s McKee refinery, Andeavor’s El Paso plant, HollyFrontier Corp’s Tulsa West plant, and Citgo’s Lemont plant.
While there is a risk of more breakdowns the longer refineries delay maintenance, these delays aren’t likely to cause huge problems, according to Bill O’Grady, chief market strategist at Confluence Investment Management. “Most likely,” he said, “we’ll just see a bigger maintenance season in March.”
A bottom-line opportunity
Some refiners have taken the opposite approach. Instead of scaling back for a time, they’ve ramped up production to take advantage of the uptick in gas prices caused by the hurricane.
According to an article in the Denver Business Journal, “At least 10 refineries in Houston and Corpus Christi areas, including Exxon’s Baytown refinery, the second-largest refinery in the nation, were shut down after Harvey hit, eliminating out about 2.2 million barrels per day of refining capacity. The shut down of crude oil refineries means less gasoline and diesel supplies nationwide.”
Less supply. Higher prices. The long-term impact on prices at the pump will depend largely on how long it takes hard-hit refineries to return to normal operations. But in the meantime, some refineries in Texas and beyond its borders have made the business decision to hit the accelerator, instead of the “Pause” button, when it comes to production.
The fallout from Hurricane Harvey will continue to unfold in the coming weeks and months. But the ripple effect—in terms to refinery operations and oil prices—has already started.