The aftermath of Hurricane Harvey has left devastation in its wake. It dumped some 27 trillion gallons of water on the states of Texas and Louisiana, causing an estimated US$75 billion in damages. From the energy perspective, there were worries that coastal refining centres would be swamped, taking out some of America’s largest refineries, which had shut down as the storm approached. In the immediate wake of the storm, WTI crude oil prices dipped while gasoline prices jumped – as the market predicted that Gulf refineries would be shut for a long while, which would reduce crude intake and cause gasoline shortages.
That didn’t really happen. By Monday, WTI and US gasoline prices were getting back to pre-Harvey levels. It’s true that some two million b/d of refining capacity was disrupted by Harvey, but half of that is already back. All major sites in Houston and Corpus Christi have either restarted or in the process of restarting. The second largest site in the US, ExxonMobil’s Baytown, is already ramping back up to full production. Motiva in Port Arthur, the largest in the US, is still offline, but processing is expected to resume soon. The Doomsday scenario of the Gulf refining network been taken out for months was avoided. The refining business is getting back to usual. On the demand side, it is estimated that some 500,000 cars were flooded across Texas by Harvey. Those cars won’t be driving again. Their owners won’t be in a position to purchase a new car again soon as well. Worries that gasoline would be at a severe shortage, therefore, were unfounded.
In fact, where Harvey is having the most impact is in a surprising place – onshore. This is the first major storm to hit since the shale revolution took off. Gulf hurricanes are not surprise to offshore producers – 20% of offshore Gulf production was shuttered over the weekend, but no lasting damage was suffered with production resuming and losses estimated at a mere 330 kb/d. It is true that the US is a lot less dependent on offshore Gulf production since inland shale production started booming. But for shale players, Harvey is their first taste of Mother Nature’s wrath. The Eagle Ford shale field in Texas was in direct path of Harvey, with some 500,000 b/d of output taken offline – almost half of its usual production. Even when the storm moved away, it left flooded roads and muddy fields in its wake. These will have to subside before production can resume, which could affect 10% of US shale output for at least a month. Further afield, while Harvey didn’t affect the prodigious Permian basin, output there is dependent on pipelines and ports that pass through Houston. Magellan Midstream, for example, closed its Longhorn and Bridgetex pipelines during the storm. It has since restarted them, along with Colonial Pipelines’ Line 1 gasoline pipe, but it is a reminder that so much of American production, refining and export capacity straddles a long coastline that is vulnerable to storms more than a quarter of the year. That applies as much to the string of LNG terminals being built on the coast, as it does to the shale drilling sites far inland.
There is more to come. Harvey was the first major hurricane to make landfall since Wilma in 2005, but it was actually a Category 4. There is a Category 5 – the highest level – currently barreling through the Caribbean. Hurricane Irma is on a course to hit Puerto Rico, Dominica, Cuba and eventually Florida. The governor Florida has already declared a state of emergency. Though there are no major US refining centres in Irma’s path (but some 450 kb/d in the Caribbean will be closed), the storm would sap gasoline demand in its wake – weakening gasoline prices at a time when refining margins are still dicey. And the hurricane season isn’t even over yet.
Harvey, while devastating to the population, turned out to be relatively harmless on the energy infrastructure front. The US Gulf will be hoping it stays that way for the rest of 2017.
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The amount of natural gas held in storage in 2019 went from a relatively low value of 1,155 billion cubic feet (Bcf) at the beginning of April to 3,724 Bcf at the end of October because of near-record injection activity during the natural gas injection, or refill, season (April 1–October 31). Inventories as of October 31 were 37 Bcf higher than the previous five-year end-of-October average, according to interpolated values in the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report.
Although the end of the natural gas storage injection season is traditionally defined as October 31, injections often occur in November. Working natural gas stocks ended the previous heating season at 1,155 Bcf on March 31, 2019—the second-lowest level for that time of year since 2004. The 2019 injection season included several weeks with relatively high injections: weekly changes exceeded 100 Bcf nine times in 2019. Certain weeks in April, June, and September were the highest weekly net injections in those months since at least 2010.
Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report
From April 1 through October 31, 2019, more than 2,569 Bcf of natural gas was placed into storage in the Lower 48 states. This volume was the second-highest net injected volume for the injection season, falling short of the record 2,727 Bcf injected during the 2014 injection season. In 2014, a particularly cold winter left natural gas inventories in the Lower 48 states at 837 Bcf—the lowest level for that time of year since 2003.
Headline crude prices for the week beginning 4 November 2019 – Brent: US$62/b; WTI: US$56/b
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South Sudan was officially recognized as an independent nation state in July 2011 following a referendum held in January 2011. The South Sudanese voted overwhelmingly in favor of secession, which led to Sudan losing 75% of its oil reserves to South Sudan. Although South Sudan now controls a substantial number of the oil–producing fields, it is dependent on Sudan for transporting oil through its pipelines for processing and export. The transit and processing fees South Sudan must pay to Sudan to transport its crude oil are an important revenue stream for Sudan.
After an agreement was reached on the transit dispute that led to a temporary shutdown of crude oil production, the governments of Sudan and South Sudan shifted their focus from border conflicts to the mitigation of their respective domestic opposition factions. The domestic political dynamics and the security situations in both countries will continue to be a potential risk for disrupting the countries’ oil supplies and exports.
In Sudan, the economic shock of the secession has had a significant effect on the economy, which has been hurt by economic mismanagement, corruption, and unsustainably high levels of spending on the military. The partial lifting of U.S. sanctions on Sudan in October 2017 has allowed for increased foreign investment, but Sudan has made little progress toward developing the upstream sector. In August 2019, Sudan’s military and civilian leaders signed a power-sharing deal that paved the way for a transitional government led by Abdalla Hamdok, an economist, to take power in the hope this government would address the country’s problems. However, Sudan remains on the U.S. government’s list of state sponsors of terrorism, which prevents the country from receiving debt relief through the World Bank-International Monetary Fund’s Heavily Indebted Poor Countries Initiative (HIPC).
In South Sudan, President Salva Kiir and the leader of the main opposition faction, Riek Machar, reached a peace agreement in September 2018, which led to reduced violence from the civil war in South Sudan. Although the peace agreement indicates progress, whether the agreement will bring prolonged stability and an inclusive and stable form of governance is unclear. The current agreement is similar to the previous one, which was signed in 2016 and collapsed after two months, and the current iteration does not address crucial elements such as power sharing between the factions and security arrangements that would allow Machar to safely return from exile. Without significant progress in improving the security and political environment, South Sudan’s ability to attract investors and restart production at its fields to increase production will be limited.
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