Gas prices could 'spike' as a result of Barry
Hurricane Harvey’s impact on the oil and gas industry hasn’t been forgotten. While 2017’s Harvey was a Category 4 hurricane with winds reaching 130 mph, the lesson learned for the industry was all about one word: flooding.
“The rise of onshore [crude oil] production has helped mitigate the risk to production from hurricanes…” Stratas Advisors' senior oil market analyst Ashley Petersen emailed AccuWeather. “The larger danger nowadays is from flooding."
“If you’ll recall, [with] Hurricane Harvey it was actually the sustained rains that caused several refineries to shut down, and this had a much larger impact on refined product prices across the country,” Petersen wrote. Hurricane Harvey was the most significant tropical cyclone rainfall event in recorded U.S. history, both in scope and peak rainfall amounts, according to the U.S. National Oceanic and Atmospheric Administration (NOAA). The storm lingered over the middle of the Texas coast, dropping over 40 inches of rain across the region and over 50 inches in some places.
The second tropical storm of the season, Barry, formed over the northern Gulf of Mexico on Thursday. Barry became a hurricane briefly on Saturday morning as it churned onto the central coast of Louisiana.
“Our greatest concern is for torrential rain that would result in significant flooding,” AccuWeather Hurricane Expert Dan Kottlowski said. “A second concern we have is for storm surge flooding.”
AccuWeather sees the greatest threat for flooding rainfall to be in eastern Louisiana, southern and western Mississippi and eastern Arkansas, where an AccuWeather Local StormMax™ of 24 inches is expected.
But, having learned from Harvey – the first Category 3 or higher hurricane in 12 years to hit the continental United States – and also 2005’s Katrina and 2008’s Gustav, experts know the interconnected nature of the oil and gas industry could mean problems elsewhere in the U.S. because of Gulf Coast flooding.
The Gulf of Mexico area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure, according to the U.S. Energy Information Administration. More than 45% of total U.S. petroleum refining capacity is located along the Gulf coast, as well as 51% of total U.S. natural gas processing plant capacity.
“Just look at what happened to Washington, D.C., Monday,” Dr. Philip K. Verleger, owner and president of energy and commodity markets consultant PKVerleger LLC, told AccuWeather. “If you get too much rain, soil gives way. If soil gives way under a pipeline, you’ve got a leak and have to shut down the pipeline.”
Petersen adds in her email to AccuWeather, “The East Coast is dependent on Gulf Coast refined products moved via pipeline. If the refineries or Colonial Pipeline complex have to reduce operations due to flooding, there are no easy options to fill the gap, meaning consumers could see prices spike.”
Colonial Pipeline originates in Houston and terminates at the New York harbor, consisting of more than 5,500 miles of pipeline and above-ground storage tanks. It delivers more than 100 million gallons of gasoline, home heating oil, aviation fuel and other refined petroleum products, according to its website.
Refineries and pipelines were vulnerable to Katrina and Gustav because they were dependent on the electrical grid to run their plants and pump stations. In 2005, Katrina knocked out power in parts of Louisiana and Mississippi, forcing Colonial to operate at reduced flow rates. Hurricanes Katrina and Gustav each disrupted oil and gas supplies throughout the U.S., sending prices skyrocketing, according to Bloomsberg Businessweek.
“A problem with the Colonial Pipeline could have a big effect, especially in places you wouldn’t expect, like Kentucky, Tennessee, Georgia, North Carolina, South Carolina…” Dr. Verleger told AccuWeather. “There are refineries in the Gulf Coast, in Delaware, Philadelphia and in Europe so the product can get over. [But there’s] nothing over there [in those Southern states]. That’s the area [potentially endangered].
“What is pretty clear,” Dr. Verleger added, “is a huge rain event is a real concern because of the flooding. There are dikes around all of these facilities, but what we learned with Harvey was that with all of the construction that has taken place in these areas and all of the cement and pavement, there’s no place for the water to go and it just builds up. And it becomes more difficult for the water to get away.”
Petersen believes the industry will be better prepared this time around.
“I think Hurricane Harvey certainly provided a learning opportunity for onshore facilities that had not had to deal with hurricanes making significant landfall in a decade,” she wrote to AccuWeather. “Those operators will be better prepared this hurricane season to protect their facilities and resume any operations that are interrupted.”
As a precaution, energy companies evacuated and shut down production on some of the rigs over the northern Gulf of Mexico as a precaution.
On Saturday, the Bureau of Safety and Environmental Enforcement released statistics regarding the offshore oil and gas operators in the Gulf of Mexico.
As of data from 11:30 a.m. CDT on Saturday, 42.3% of all personnel have been evacuated from the managed production platforms in the Gulf of Mexico.
The BSEE also estimates about 69.97% of the current oil production and 55.56% of the natural gas production has been shut in. This procedure involves closing sub-surface safety valves below the surface of the ocean floor to prevent the release of oil or gas.
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