Oil Companies Brace for Twin Gulf Coast Storms
By Rebecca Elliott and Collin Eaton
Oil companies have shut in roughly 58% of offshore oil
production in the Gulf of Mexico and are securing refineries and
petrochemical plants as two tropical storms barrel toward Louisiana
Tropical Storm Marco is expected to approach the Louisiana coast
Monday afternoon, while Tropical Storm Laura is poised to
strengthen into a hurricane Tuesday as it sweeps across the Gulf of
Mexico before nearing the Louisiana and Texas coastline late
Wednesday, according to the National Oceanic and Atmospheric
The region is the heart of America's fuel making and chemicals
corridor, home to nearly half of the nation's refining capacity,
according to the Energy Information Administration. Roughly one
million barrels a day worth of oil output in the Gulf had been shut
off as of Sunday, according to the Bureau of Safety and
Environmental Enforcement, or around 10% of the oil produced in the
Gulf Coast refineries, typically located in low-lying coastal
areas, are vulnerable to both wind damage that affects power grids
and prolonged flooding that can affect pumps and other ground-level
equipment. Hurricane Harvey, for example, forced roughly a quarter
of U.S. refining capacity to close in 2017 when the storm inundated
the Houston area.
Chemical facilities face similar dangers, but a temporary loss
of some petrochemical products isn't likely to affect consumers,
If the path of Laura, expected to be the more powerful of the
two storms, moves further into Texas, the impact on U.S. refineries
could be more significant, said Andy Lipow, an oil analyst at Lipow
Oil Associates LLC in Houston. But Mr. Lipow said he didn't expect
a significant supply disruption from either storm as inventories of
gasoline and diesel were both well above last year's levels.
Severe weather can send prices at the pump soaring, but American
drivers are unlikely to see major impacts this time around because
demand remains depressed due to Covid-19, fuel stockpiles are high
and refiners elsewhere likely could pick up any slack.
"If there is an impact from the storm, it's more likely to be
local outages, local disruption," said Patrick De Haan, head of
petroleum analysis for GasBuddy, referring to Laura. "It should not
be a pricing event."
U.S. benchmark oil was up less than 1% midday Monday, trading
around $42 a barrel. Regular gasoline prices averaged about $2.20 a
gallon, according to GasBuddy, around 15% below year-ago
U.S. fuel makers have already reduced processing this year in
light of weak demand due to the coronavirus pandemic. If the
tropical storms cause refineries to shut down in parts of
Louisiana, for example, refiners in the Houston area could easily
ramp up fuel production, said Sandy Fielden, an analyst at
financial services firm Morningstar Inc.
"There's no shortage of product," Mr. Fielden said. "It's not a
U.S. refiners were operating at around 81% of capacity in
mid-August, down from around 96% a year earlier, according to the
Offshore, Exxon Mobil Corp. has evacuated personnel from its one
Gulf of Mexico platform, with minimal impact to its production,
while the company's Gulf Coast refinery operations were normal,
spokesman Todd Spitler said.
"ExxonMobil is closely monitoring the storms and continues to
prepare for severe weather at offshore and coastal operations in
the Gulf of Mexico," Mr. Spitler said.
Royal Dutch Shell PLC, meanwhile, had paused production at all
but one of the nine assets it operates in the Gulf of Mexico and
evacuated nonessential personnel. Chevron Corp. also pumped the
brakes on offshore production in the region and evacuated employees
Colonial Pipeline Co., which ships fuels into the northeast U.S.
from the Houston area, said it was in contact with refiners and
didn't have plans to shut down any portion of its system.
Write to Rebecca Elliott at firstname.lastname@example.org and Collin
Eaton at email@example.com
(END) Dow Jones Newswires
August 24, 2020 14:00 ET (18:00 GMT)
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