Harvey Hits Oil Industry: 16 Percent of U.S. Refinery Capacity Cut Off

Oil Refinery Shutdown Joe RaedleGetty Images
Joe Raedle/Getty

Tropical Storm Harvey’s record rainfall is impacting the oil energy hub in Texas with more refinery outages expected in Louisiana as the storm moves up the Gulf Coast.

The outages so far represent 16 percent of overall U.S. refinery capacity, Reuters reported, adding that the outages range from delivery delays to outright shutdowns.

“About 3 million bpd (barrells per day) of U.S. refining capacity had already been shut, with more shutdowns expected,” Reuters reported. “Restarting plants even under the best conditions can take a week or more.”

More than half of U.S. refinery capacity is located along the gulf coast, with an estimated 5.6 million bpd of capacity in Texas and 3.3 bpd of capacity in Louisiana.

“More refinery closures were expected, as parts of Texas have received more than four feet of rain,” Reuters reported.

Exxon has shut its 362,300 bpd Beaumont refinery in east Texas due to high water in the plant, sources told Reuters. It also shut production at its Baytown, Texas, refinery – the nation’s second largest.

Marathon Petroleum Corp (MPC.N) was shutting two refineries in the Houston area on Tuesday because of flooding, according to Reuters’ sources. The 459,000 bpd Galveston Bay Refinery in Texas City, Texas, 45 miles (72 km) south of Houston, has flooding in its tank farm and on nearby streets, the sources said.

And the effects will be felt far beyond the gulf coast.

The Explorer Pipeline, which runs from Texas to Chicago, is expected to shut two lines on Wednesday.

Colonial Pipeline, the key gasoline artery up the East Coast, will still be shipping barrels, but has faced flooding at origination points in Texas, according to Reuters.

The Northeast is already dealing with reduced supply, with Philadelphia Energy Solutions, the region’s largest refiner, reporting it has sold all its available regular gasoline barrels due to increased demand, while Monroe Energy’s refinery has increased runs, according to Reuters.

Consumers will feel the pinch as a result of the shifting energy supply.

“These closures are already impacting markets, with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply,” Sandy Fielden, director of oil and products research at Morningstar, said.

“Fuel prices were expected to keep rising as refining capacity remains down and pipelines run short,” Reuters reported.

The average gallon of gasoline rose one cent overnight to $2.38 nationally. The average price in Texas rose two cents to $2.19 per gallon.

“Harvey will raise product prices nationwide, denting demand, especially in September,” a Barclays analysts said in the Reuters report.

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