Harvey is ramping up to be a pretty impressive hurricane and oil and gas companies are scrambling to stay ahead of the storm and get ready to get through it intact.
Gas prices are already spiking as Harvey approaches the Texas Gulf Coast where roughly 17 percent of all U.S. crude oil output and nearly half of the country's refining capacity is located, according to the U.S. Energy Information Administration.
A number of companies already started going through the costly process of bringing down production on active offshore rigs and pulling workers off the platforms on Thursday afternoon, as we've reported, shutting down just under 10 percent of the Gulf of Mexico crude oil production and about 15 percent of its natural gas production, according to the Bureau of Safety and Environmental Enforcement, a U.S. Department of the Interior agency.
Meanwhile, the Houston Ship Channel is under a storm surge warning and has restricted in-coming ships while other channels along the coast have closed entirely until the storm passes, according to Bloomberg.
The storm surge warning for the Houston Ship Channel is particularly troubling since a storm surge traveling over the Gulf of Mexico, into Galveston Bay and up the Houston Ship Channel could cripple one of the busiest port's in the nation and a main artery of the U.S. refinery system.
Still, at this point that's not the main risk,according to Jim Blackburn. The longtime environmental attorney has been working on flood protection for the Houston area since the devastation of Hurricane Ike in 2008, as we reported in our 2016 cover story. The real concern is what will happen if the storm surge comes in and the ship channel is battered by heavy rain and water for days on end, he says.
"Right now it doesn't look like Harvey will cause the horror that we are most concerned about with the Houston Ship Channel, it would take a 25-foot storm surge to do that, and that's not this storm, but I tell you none of our models have ever seen a storm hang around for five or six days," Blackburn says. "A lot could happen in that time."
The other risk is from the sheer potential for flooding. If a storm surge comes up the Houston Ship Channel, the water will be pushed up Buffalo Bayou at the same time that the Addicks and Barker Reservoirs may be filling up with rain, Blackburn notes.
"The Army Corps of Engineers is not going to allow those dams to fill up with water and they will probably flood the people down Buffalo Bayou if they have to, which means our flood protection is an issue."
University of Houston energy economics professor Ed Hirs echoes those concerns. “The interruption of course is real, it's already happening,” Hirs says. “If the surge comes up and pushes that water up so that the city can't drain, it will disrupt the flow of anything that is going out.”
Even if Houston dodges the worst there's still the fact that Corpus Christi is currently right in Harvey's path. A hurricane merely needs to threaten an area with refining capacity to result in precautionary shutdowns and Corpus Christi has five refineries that account for 4.2 percent of the total U.S. refining capacity.
Corpus Christi refineries Valero, Flint Hills, Citgo, Magelland and Buckeye have all opted to suspend operations as a precaution for the incoming storm, according to AAA. If they get hit badly a nice chunk of U.S. oil refining capacity will be out of commission for as long as it takes to get the facilities safely back up and running, which can take days or weeks depending on the circumstances.
Overall, between the offshore production, the refining capacity on the Central Texas Coast and the Eagle Ford Shale play in South Texas, Texas produces a massive portion of the crude oil production in the nation, as we all know. Shell, Anadarko and ExxonMobil are pulling personnel from their offshore rigs that are expected to be in the path of the storm. ConocoPhillips is evacuating offshore employees and taking the extra step of suspending all drilling and completion activities in the Eagle Ford Shale play and moving their employees and equipment out of South Texas as well.
If things go exactly wrong we may now see why having so much oil production in one concentrated area — about 45 percent of the nation's refining capacity is located on the Gulf Coast and about a third of that capacity is in the path of the storm — isn't always such a great thing.
So a lot can happen between now and when Harvey actually makes landfall, but we're already seeing the initial effects of the shutdowns. The risk of tighter inventories is driving the futures market up, average gasoline prices popped up about .2 percent nationally with sharper increases in the Gulf Coast region — about .33 percent according to AAA. And that's just so far.
If Harvey comes ashore as a Category 3, as current forecasters are predicting, the storm could do a lot of damage to both the production and refinery portions of the Texas oil industry. With a storm of this size, it could take weeks to get producers and refineries back online and prices are going to be impressively high in between now and then.