Horrible Harvey, which stormed into South Texas as a Category 4 storm Friday night, is continuing to wreak havoc along the Gulf Coast, with catastrophic rainfall disrupting lives and shuttering the energy breadbasket of the United States. The storm was expected to continue battering the coast through much of the week, leaving the Houston-Galveston region swimming in more than four feet of accumulated rainfall.
In its 4 p.m. CDT update Monday, the final one before presstime, the National Hurricane Center said the tropical storm’s location had changed to latitude 28.5 North, 95.7 West, about 45 miles east of Port O’Connor, TX and 145 miles southwest of Port Arthur, TX with maximum sustained winds of 45 mph. Harvey was moving east-southeast at 3 mph.
The tropical storm warning had been extended Monday afternoon to east of Cameron, LA, to Intracoastal City, LA. A storm surge was issued from Port Bolivar, TX, to Morgan City, LA.
“On the forecast track, the center of Harvey is expected to be just offshore of the middle and upper coasts of Texas through Tuesday night, then move inland over the northwestern Gulf Coast on Wednesday,” NHC said.
“Harvey is expected to produce additional rainfall accumulations of 15-25 inches through Friday over the upper Texas coast and into southwestern Louisiana,” said the National Weather Service (NWS). “Isolated storm totals may reach 50 inches over the upper Texas coast, including the Houston/Galveston metropolitan area…
“Elsewhere, Harvey is expected to produce total rain accumulations of 5-15 inches farther south into the middle Texas coast and farther east across south-central Louisiana. Rainfall amounts of 5-10 inches are expected in southeast Louisiana.”
“The damage will be horrific,” Texas Gov. Greg Abbott said Monday. “This is going to take years for us to be able to build out the repairs that are going to be needed to overcome this flooding and hurricane disaster.”
Some Gulf Platforms Evacuated
As of Monday afternoon, workers had been evacuated from 98 (13.3%) Gulf of Mexico (GOM) production platforms -- down from 105 on Sunday -- and five of the GOM’s 10 non-dynamically positioned (DP) rigs, the Bureau of Safety and Environmental Enforcement (BSEE) said. A total of 331,370 b/d (18.94%) of crude oil had been shut in along with 583 MMcf/d (18.12%) of natural gas, both down slightly from the previous day’s BSEE report.
After carving a path of destruction as it roared onshore, destroying the fishing villages of Port Aransas and Rockport, Harvey mowed down homes and carried his rain inland, flooding the Houston area beginning Saturday afternoon. The NWS said it is a 1,000-year storm, a deluge that has not only drowned the fourth largest city in the nation but also flooded out neighboring counties and inflicted damages in as many as 50 to the far north and east.
The extent of damages incurred by the oil and gas sector remained unknown Monday, but it was evident that the region’s refinery and petrochemical sector, from Corpus Christi in South Texas to New Orleans, would take a major hit financially and operationally.
“Information on the extent of the damages incurred by the oil and gas infrastructure remains limited at this point,” said Goldman Sachs analysts Damien Courvalin, Huan Wei and Callum Bruce. “Nonetheless, data available so far point to sizably larger refining than production disruptions…”
On the natural gas side, data and analytics company Genscape Inc. said its Spring Rock production team was estimating Texas production for Monday at just under 15.83 Bcf/d, about 0.98 Bcf/d below pre-storm levels. South Texas was off about 0.7 Bcf/d.
As of Evening Cycle for gas day Monday (Aug. 28), pipeline scheduled nominations showed that onshore production (defined by processing plant and gathering system interconnects) in East Texas was down roughly 510 MMcf/d since Thursday (Aug. 24). During the two weeks leading up to Harvey’s initial impacts, pipe nominations showed onshore production in East Texas averaged 1,911 MMcf/d.
Demand was down roughly 0.7 Bcf/d. Scheduled nominations showed that demand (at citygates, end-users and power plants) in East Texas was down 474 MMcf/d since pre-Harvey levels of 1,188 MMcf/d (calculated as the 14-day span prior to Aug. 24).
Using average daily gas demand from Monday through Wednesday (Aug. 28-30) as a baseline for the south-central region leading into Hurricane Harvey, Monday’s gas demand impact, estimate based largely upon early cycle gas nominations, is 4.9 Bcfd, Genscape said. That is a net impact adjusted for 0.7 Bcf/d typical decrease in south-central demand on Saturdays and Sundays. The cumulative impact using this approach is 14.4 Bcf/d.
Houston-based Cheniere Energy Inc. said liquefied natural gas (LNG) production operations at its Sabine Pass, TX, facility continued through the storm and "early assessments" showed "only minor cosmetic impacts" at its Corpus Christi LNG construction site.
"Our thoughts and prayers are with all of our neighbors and communities here in Texas and Louisiana that have been impacted by this devastating and continuing storm," said Cheniere CEO Jack Fusco. "While Cheniere has been lucky to avoid any major impacts from Harvey, many in our communities have a long road ahead to assess the damage and recover from this storm. To help in the relief efforts, Cheniere will donate $1 million to the Red Cross Harvey relief effort."
With the storm expected to continue impacting the Houston area, Cheniere said it "has activated its emergency office location in Dallas to support its gas supply and trading division and other essential functions to ensure obligations are met to continue producing LNG at Sabine Pass."
Sempra Energy's delayed Cameron LNG construction site in Louisiana was evacuated on Friday ahead of the storm. The facility "continues to closely monitor reports” from the NWS and other government agencies, a spokesperson told NGI. "We mobilized the Cameron LNG Damage Assessment Recovery Team (DART) Sunday morning to re-enter the site."
The New Orleans region is expected to get up to five-to-eight inches of rain as soon as Monday night. "It is difficult to estimate when we will restart construction given Harvey's projected to make another landfall as a tropical storm on the upper Texas coast,” the Sempra spokesperson said.
Pipeline Activity Picking Up
Kinder Morgan Inc. has begun recovery and restarted activities in areas that are safely accessible, a spokeswoman told NGI Monday afternoon.
"For crude and condensate operations in South Texas, we are able to accept pipeline receipts at Helena, Gardendale, Smiley and DeWitt, and all truck lanes are open and available to offload product at all of our KMCC and Double Eagle facilities. We are making preparations to resume deliveries," said Kinder's Melissa Ruiz.
"No natural gas pipelines have been shut down in South Texas or Louisiana, and the Houston Central Plant has been placed back into service. Compressor stations on our TGP, NGPL and Intrastate systems are being evaluated and are being brought back online as soon as possible following appropriate repair and restoration activities.
"Terminals along the Houston Ship Channel and Gulf Coast are manned and secured, and we are mobilizing resources in order to resume full operations as soon as possible."
Enterprise Products Partners LP said as of Monday afternoon, none of its facilities had incurred any significant damage. In South Texas, two of eight natural gas processing plants, including its largest plant Yoakum, were in service.
Enterprise’s remaining six gas processing plants and the Shoup natural gas liquids (NGL) fractionation facility are currently not in operation because of the effects of the storm including loss of power, loss of third party services, minor damage and/or the level of gas production. In general, the partnership’s natural gas, NGL and crude oil pipelines serving South Texas and the Eagle Ford Shale are in commercial service.
At Enterprise’s Mont Belvieu, TX facility, four of the eight NGL fractionators, three of its six propylene fractionators and storage facilities “are in service or limited service. The main impacts of the storm at Mont Belvieu have been rising water and loss of power.”
With respect to crude oil pipeline infrastructure in the Houston area, the Seaway pipeline from its origin in Cushing, OK, to most delivery points are in service, Enterprise said.
Deliveries from Seaway and Enterprise’s crude oil distribution system to some delivery points may be on allocation from time to time or not in service because of disruptions related to electrical power to pump stations and/or restrictions at receipt points.
Enterprise also said its marine terminals were not in service because the Houston Ship Channel and the Port of Beaumont were closed to ship traffic. Seaway’s Texas marine terminals at Texas City and Freeport are also not in service.
TransCanada Corp. said operations were stable across all of its footprint. "Our gas control and scheduling teams are operating normally and have not experienced any service interruptions in any of our facilities, data centers and transportation systems," the company said in a notice to customers posted on Sunday. .
Texas Eastern had evacuated some pipeline facilities but said its operations were also stable on Sunday. Harvey and the mandatory evacuations that came with it forced Natural Gas Pipeline Co. Sunday to declare a force majeure event on its Louisiana Line upstream of Compressor Station 342 in Cameron Parish, LA, and flooding made Station 343 in Liberty County, TX unavailable until the force majeure is lifted.
Meanwhile, the ports of Houston, Galveston, Corpus Christi, Texas City, Freeport and Galena Park remained closed.
The Goldman analysts estimated nearly 3 million b/d of refinery capacity was offline as of Sunday, or around 16.5% of the 18.2 million b/d of U.S. capacity. Those closures combined with an estimated shut-in of 1 million b/d of crude production (11% of 9.3 million b/d current production) and 2 Bcf/d of gas production (3% of 72 Bcf/d current production).
“Should these levels of outages remain in place, and using past hurricanes as proxies for the impact on oil demand, we roughly estimate that the impact of Harvey on the U.S. oil market would be to increase domestic crude availability by 1.4 million b/d while removing 615,000-785,000 b/d of gasoline and 700,000 b/d of distillate supplies,” Courvalin and his team said. “Larger refinery outages would increase these long crude and short product impacts.”
Under that scenario, Harvey is “likely to lead to further strengthening in product cracks given the loss in domestic refined product supply.”
Gasoline Prices Up
Harvey should lead to a weakness in domestic crude prices “given the lack of refining outlet,” said the Goldman team. “From a global oil supply-demand perspective, the storm is likely to lead to higher crude and product inventories over the next couple of months given the likely larger hit on U.S. demand than supply.”
At this stage, most of the refining outages reported have been preventive, with only a few reporting minor flooding.
“However, the slow moving nature of the storm will likely lead to these shutdowns continuing in coming days and may generate persistent damage as well. Should the storm continue to head East toward Houston, as forecasts project, it risks creating further refinery outages with 850,000 b/d of capacity in Houston not yet reported offline.”
September CME Group RBOB gasoline futures gained 4.57 cents on Monday to settle at $1.7123 per gallon.
The storm’s impact has led to a bigger loss of onshore supply -- from the Eagle Ford Shale -- than historically had been the case, analysts said. It’s the first GOM storm to have a major impact on onshore oil and gas production, as operators in the Eagle Ford Shale began removing workers and shutting in output late last week.
“Gulf of Mexico production was instead spared by the path of the hurricane,” said the Goldman team. “Historically, onshore production has rebounded faster than offshore production and this would be consistent with producer commentary that loss of production is due to preventive shut-ins for now.”
Plano, TX-based Denbury Resources Inc., like many of its peers, suspended operations and temporarily shut-in all production because of the storm, affecting around 16,000 boe/d net. The Hastings, Oyster Bayou, Conroe, Thompson, Webster and Manvel fields were all affected.
"While no significant damage outside of localized flooding has been reported at any of these fields, the full impact of the storm may not be determined for several days as we have evacuated our employees and contractors as a precautionary measure," management said.
CEO Chris Kendall said the company is prioritizing safety above all else. Denbury "will continue to monitor conditions at each of the impacted fields, and will resume operations to restore production when conditions allow and we are able to ensure the safe return of our personnel."
ESAI Energy LLC in an update Monday said “several key counties in the Eagle Ford Shale...are under water and both drilling and completion activities have been halted until the storm passes, floodwaters recede, and damage assessments can be made. Over 500,000 b/d of production is likely to be impacted from the South Texas region.
“Until port and terminals along the Texas Gulf Coast are operational, pipeline movements will be curtailed. Permian Basin activity will slow in response to Houston destinations unable to receive crude. Port closures from Corpus Christi to Houston will also stall both import and export activity. Flooded conditions onshore could take days to clear and flood damage may be extensive, resulting in shut-in production for more than a month.”
U.S. crude production could fall an estimated 800,000 b/d in September, according to the ESAI team. “At this point, until we know more about damages and recovery, crude production is estimated to return to August levels of roughly 9.5 million b/d by November.”
Overall, the impact of Harvey on the oil market, total demand versus total supply, likely will be higher oil inventories over the next couple of months, according to Goldman.
“First, onshore U.S. production typically normalizes in the month after a hurricane (as most wells are preventatively shut-in), while historically the impact on demand lasts several months. Second, the historical declines in demand observed during strong hurricanes Rita-Katrina (1.0 million b/d the first month) and Ike-Gustav (1.4 million b/d) are larger than the onshore (and currently observed) declines in oil production.”
There are two caveats to the historical template, said analysts. The proximity of the pairs of hurricanes overstate the demand impact, “while the magnitude of the onshore production impact of Harvey is unprecedented.”
Harvey also could put a dent in crude production and refinery demand, according to Evercore ISI’s James West.
“While the U.S. oilfield hardly gets respite from the 24/7 hustle and bustle of drilling and completions, Hurricane Harvey has introduced enough uncertainty to compel many of the land rigs to prepare for a temporary laydown,” he said.
“Our sources on the ground have confirmed that many of the rigs are running drill pipe on a special packer to hang the drill string and lay down the derrick. Hands/specialists will be sent home to their families, and the service companies (many of which would have kept crews in-base for safety reasons, anyway) will likely shut down until the storm passes.”
Seasonality always has been a point of concern for service providers in the Gulf Coast region, “but we note several Harvey-specific operational challenges that may affect rigs operating from the Eagle Ford to South Louisiana (circulation, damage to equipment, damage to roads, and a short-term labor squeeze).”
Tudor, Pickering, Holt & Co. (TPH) said the production impact “should be days and not weeks.” The onshore impact from rain in South Texas is estimated now at 300,000 b/d from the Eagle Ford, which “should be short-lived.” But the weekly Department of Energy data over the next couple of weeks “will be volatile with impacts on GOM/Eagle Ford production, Texas refining utilization, oil and refined product imports/exports.
The TPH team is expecting every Houston area refinery to shut or at least significantly curb operating rates by Tuesday because of “catastrophic flooding, lack of personnel and crude delivery delays…
“If Harvey loops and begins moving up the Texas coast toward Louisiana as forecasted, additional shutdowns could occur in the Port Arthur/Beaumont/Lake Charles refining center, which holds another 2.2 million b/d of capacity (12% of U.S. capacity), thus worst-case suggests that upwards of 25-30% of domestic refining capacity could be shuttered near-term.”
Industry Donating to Relief Efforts
Meanwhile, the energy sector is taking care of its own, with donations pouring in from companies large and small. ExxonMobil Corp. last Friday pledged $500,000 to relief efforts. On Monday Chevron Corp. pledged $1 million to the American Red Cross.
“Houston represents the single-largest concentration of Chevron employees globally, and the company has important business interests throughout Texas, including the Permian Basin and Corpus Christi,” the San Ramon, CA-based oil major said.
"Our thoughts are with all the people who have suffered tremendous losses and disruption from this catastrophic hurricane and related flooding," said President Jeff Shellebarger of Chevron North America Exploration and Production Co. "As a business with deep ties to Texas and Houston, this donation will assist with the initial critical relief process. We will continue to work with responding organizations to support ongoing recovery efforts, which we hope can begin soon."
The donation would support relief efforts throughout the affected regions, including Corpus Christi and the Greater Houston metropolitan area. In addition, the company plans to match donations made to the relief efforts by its employees and retirees, many of whom have seen the tragedy unfold first-hand.
"The Red Cross is working around the clock in extremely challenging conditions in Texas to help people impacted by Hurricane Harvey," said American Red Cross CEO Gail McGovern. “We couldn't do it without the generosity of our donors -- like Chevron.”