As Hurricane Harvey barrels toward the Texas Gulf Coast, the Texas energy industry is getting set to deal with the potential fallout from the storm.
There are several ways this hurricane — Harvey is currently a Category 1 but could become as much as a Category 4 with winds of up to 125 mph by the time it makes landfall on Friday evening — will hit the Texas energy industry.
First, there's the offshore rigs to worry about. Harvey will first pass over more than 3,000 active offshore rigs stationed in the Gulf of Mexico as it comes ashore on Friday night. The storm is expected to veer toward southeast Texas, which means it will not be moving through the central planning area where the bulk of the active rigs are located.
Still, companies started shutting down production and evacuating some of these rigs earlier this week. So far, Anadarko Petroleum has shut down production and Noble Corp plc has evacuated its Noble Paul Romano rig. ExxonMobil is cutting output at its Hoover production platform ahead of the storm and is planning to evacuate staff in stages from the offshore facilities, while Royal Dutch Shell has shut down production at its Perdido platform and evacuated the facility. Overall, more than 9 percent of the Gulf's offshore production has been shut down, according to Bloomberg.
It may sound like the energy companies are expecting the worst, but energy economist Ed Hirs says this is simply protocol for dealing with tropical storms and hurricanes.
“Offshore platforms and rigs are designed to take these types of storms. We all remember Thunderhorse, the rig that was almost lost during Katrina, but that was because somebody had left a bulkhead door open, human error. As long as the crews maintain safety protocols and procedures, there's not much that will happen,” Hirs says. “This is something the industry plans for and something the industry insures against.”
From there, a lot will depend on where the storm actually makes landfall. “If the storm turns out to be more devastating on shore, the No. 1 risk will be consumers because we'll probably have gas shortages until things get back online," Hirs says. "Typically, the industry recovers within a couple of weeks of the storm, but it depends on the level of destruction.”
While there's always a chance Harvey could hit south of Galveston and roar up the Houston Ship Channel, playing out a nightmare scenario, as we noted in our 2016 cover story on the controversial "Ike Dike" plan, right now it looks like Corpus Christi will get the brunt of the storm.
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Even though the refineries and plants in Corpus, like the ones in Houston, are built to handle these storms, the threat from Harvey means that many of these refineries may have to be shut down, a dangerous process that is also known as one of the two times a refinery is most likely to explode. (The other time being when workers have to restart a refinery after it has been shut down.) The shutdowns are difficult enough to contend with, but if there's flooding and water gets into the works, it can take weeks to repair these facilities.
"These sites are built for this with huge piping systems on enormous concrete slabs, and it's unlikely this storm, or even a storm like Ike or Katrina, could take them down," Bill Gilmer, director of the Institute for Regional Forecasting at University of Houston's Bauer College of Business, says. "But if water gets into these systems, that's when things get difficult. It can take a long time to fix. And there's a lot of money being lost while that happens."
In fact, no matter where it hits, the oil industry is going to feel the jolt. Millions of dollars will be lost each day rigs, refineries, petrochemical plants and the various ship channels along the Texas coast are shut down due to the storm.
Gilmer says the losses will be made up once the storm passes, but acknowledges consumers will still feel the pinch. “The whole industry is a giant web of pipelines and connections,” Gilmer says. “Prices will pop up, some in strange places that you wouldn't think would be connected to this, but it's all connected. There could be gasoline shortages in some areas. The industry plans for this and is used to working things out so adjustments will be made pretty quickly, but we'll still probably feel it.”