NrgEdge Editor

Sharing content and articles for users
Last Updated: September 9, 2017
1 view
Business Trends
image

Hurricane Harvey disrupts U.S. Gulf Coast refineries, infrastructure, and supply chainsWith its landfall near Corpus Christi, Texas as a Category 4 storm two weeks ago on August 25, 2017 and subsequent path along the Gulf Coast, Hurricane Harvey caused substantial disruptions to crude oil and petroleum product supply chains and prices because of the high concentration of petroleum infrastructure in the Gulf Coast, Petroleum Administration for Defense District (PADD) 3. Just over half of all U.S. refinery capacity is located in PADD 3; Texas alone represented 31% of all U.S. refinery capacity as of January 2017. These refineries supply petroleum products to local markets, domestic markets on the East Coast (PADD 1) and in the Midwest (PADD 2), and international markets. As of March 2017, PADD 3 accounted for 49% of total U.S. working crude oil storage capacity and over 40% of working storage capacity for both motor gasoline and diesel fuel. Furthermore, PADD 3 represented 62% of total U.S. crude oil production in 2016, with an additional 18% coming from the Federal Offshore Gulf of Mexico.

Hurricane Harvey’s most significant effect on petroleum markets was to curtail refinery operations in Texas. Refinery operations are largely dependent on a supply of crude oil and feedstocks, electricity, workforce availability and safe working conditions, and outlets for production. As a result of Hurricane Harvey, many refineries in the region either reduced runs or shut down in its aftermath. For the week ending September 1, 2017, gross inputs to refineries in PADD 3 fell 3.2 million barrels per day (b/d) (-34%) from the previous week and were down 2.8 million b/d (-31%) from the same time last year. Four-week average PADD 3 gross refinery inputs fell to just above that measure’s five-year average of 8.5 million b/d (Figure 1). Outages and reduced runs resulted in PADD 3 refinery utilization falling from 96% to 63%, while other areas of the country remained virtually unchanged.

Figure 1. Gulf Coast (PADD 3) gross refinery inputs

In addition to refineries, many crude oil and petroleum product pipelines reduced operations or shut down. The most prominent of these was the Colonial Pipeline system, a 2.5 million b/d petroleum product pipeline consisting of approximately 5,500 miles of pipeline that consistently operates at or near full capacity. Colonial connects 29 refineries and 267 distribution terminals, carrying gasoline, diesel, and jet fuel from Houston, Texas to New York Harbor. Decreased supplies of petroleum products available for the pipeline in Houston and Port Arthur, Texas, forced Colonial Pipeline to curtail operations and ship intermittently for a brief period of time before continuous operations at reduced rates were restored on September 6.

Disruption to Colonial Pipeline supplies reduced PADD 1 total motor gasoline inventories by 2.2 million barrels to 60.5 million barrels for the week ending September 1. Of this drawdown, 2.1 million barrels occurred in the Lower Atlantic (PADD 1C) states. This draw is less than a previous outage of the Colonial Pipeline in September 2016, when PADD 1C inventories fell nearly 6 million barrels.

Another logistical complication was created when the ports of Corpus Christi and Houston-Galveston were closed to ship traffic as a result of the storm. Large volumes of crude oil and refined products are both imported and exported through these ports.

In PADD 3, the net result of all these events led to Gulf Coast crude oil inventories to build by 1.7 million barrels for the week ending September 1, 2017. With refinery operations on the Gulf Coast disrupted, crude oil inventories in Cushing, Oklahoma also increased by 800,000 barrels.

The net effect on PADD 3 motor gasoline inventories because of impaired refinery runs and transportation options was a draw of 60,000 barrels to 82.4 million barrels for the week ending September 1, 2017, but inventories remain 9.2 million barrels (13%) higher than the five-year average.

Both crude oil and gasoline prices were influenced by the effects of Hurricane Harvey. Because of lower refinery runs and limited reductions in crude oil production, West Texas Intermediate (WTI) crude oil futures prices on the New York Mercantile Exchange (NYMEX) decreased from $48 per barrel (b) on August 25 when Hurricane Harvey made landfall, to $46/b on August 30. WTI crude oil futures prices have since increased, reaching $49/b on September 6.

By contrast, gasoline futures as well as wholesale and retail prices for gasoline increased because of the impacts on refineries and pipeline infrastructure. On the Gulf Coast, the wholesale price of gasoline increased from $1.66 per gallon (gal) on August 25, 2017 to $2.05/gal on August 31. The benchmark Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline NYMEX futures price increased from $1.67/gal to $2.14/gal over the same period (Figure 2).

Figure 2. Gasoline spot and futures prices

As a result of the changes in wholesale and futures prices, retail prices for gasoline also increased. The U.S. average regular retail gasoline price increased $0.28/gal to $2.68/gal between August 28 and September 4, 2017. The PADD 3 and Houston, Texas prices both increased $0.35/gal to $2.51 per gallon and $2.43/gal, respectively. The statewide Texas average regular retail gasoline price increased $0.40/gal to $2.56/gal (Figure 3).

Figure 3. Regular gasoline retail prices - all formulations

Unlike previous significant Gulf Coast hurricanes, such as Katrina (2005), Gustav (2008), and Ike (2008), Hurricane Harvey had a more westward path, with the strongest effects of the storm mostly missing the largest concentration of offshore oil and gas production facilities. The Bureau of Safety and Environment Enforcement estimates that approximately 2.0% of Gulf of Mexico platforms were evacuated as of September 4, representing shut-in oil production of 121,484 b/d. According to the Texas Railroad Commission and other public sources, EIA estimates the highest on-shore crude oil production outages of approximately 500,000 b/d occurred around August 25 and 26.

The outcomes from Hurricane Irma are likely to be very different. While Hurricane Harvey impacted a major source of U.S. transportation fuels supply, demand in unaffected areas remained intact. Irma, which is projected to impact Florida and potentially the Eastern Seaboard, will likely disrupt demand centers.

Because of the displacement, evacuations, and other safety measures initiated as a result of the Hurricane Harvey, some respondents to EIA’s surveys may not have been able to submit data within the reporting window. EIA has and will continue to work diligently with respondents to ensure robust and accurate statistics.

U.S. average regular gasoline and diesel retail prices increase

The U.S. average regular gasoline retail price increased 28 cents from the previous week to $2.68 per gallon on September 4, up 46 cents from the same time last year. The East Coast price rose nearly 39 cents to $2.72 per gallon, the Gulf Coast price rose 35 cents to $2.51 per gallon, the Midwest price rose 23 cents to $2.54 per gallon, the Rocky Mountain price rose 14 cents to $2.61 per gallon, and the West Coast price rose over 11 cents to $3.02 per gallon.

The U.S. average diesel fuel price increased 15 cents to $2.76 per gallon on September 4, 35 cents higher than a year ago. The Gulf Coast price rose 19 cents to $2.62 per gallon, the East Coast price rose over 16 cents to $2.79 per gallon, the Midwest price rose 14 cents to $2.71 per gallon, the West Coast price rose 13 cents to $3.04 per gallon, and the Rocky Mountain price rose 8 cents to $2.80 per gallon.

Propane inventories gain

U.S. propane stocks increased by 6.3 million barrels last week to 79.9 million barrels as of September 1, 2017, 19.2 million barrels (19.4%) lower than a year ago. Gulf Coast, Midwest, East Coast, and Rocky Mountain/West Coast inventories increased by 4.5 million barrels, 1.4 million barrels, 0.3 million barrels, and 0.2 million barrels, respectively. Propylene non-fuel-use inventories represented 4.3% of total propane inventories.

3
4 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Your Weekly Update: 10 - 14 June 2019

Market Watch

Headline crude prices for the week beginning 10 June 2019 – Brent: US$62/b; WTI: US$53/b

  • With US’s trade and tariff assault abating for the moment, crude oil prices have consolidated their trends to steady up as OPEC+ nations signal their desire to continue stabilising the oil market ahead of a June 25 meeting in Vienna
  • Despite some background squabbles between Russia and Saudi Arabia – with Russia at pains to emphasise its position regarding lower oil prices – the group has seemingly come together
  • Saudi Arabia has reportedly corralled the OPEC group to agreeing to extending the current supply deal to December, even Iran, but convincing Russia has been a harder task and adherence may continue to be an issue
  • Meanwhile, the US continues to tighten the screws on Venezuela and Iran, announcing sanctions on Iranian petrochemicals exports and targeting Venezuela’s trade in diluents that are used to blend heavy crude down
  • With reports that Iranian crude exports were down to an estimated 400 kb/d in May, tensions in the Persian Gulf continue with the latest incident being attacks on tankers; this risk factor will lift the floor for oil prices for now
  • After a brief rise last week, American drillers dropped 11 oil rigs but added 2 gas rigs according to Baker Hughes for a net loss of 9 active sites, bringing the total active rig count down to 975
  • As OPEC prepares to meet, the market has seemingly locked in an extension of the supply deal into projections, which will leave little room for gains; expect Brent to fall to the US$60-62/b range and WTI to trade at US$51-53/b

Headlines of the week

Upstream

  • BP is selling its stakes in its Egyptian concessions in the Gulf of Suez to Dubai-based Dragon Oil (a subsidiary of ENOC), which do not include BP’s core production assets in the West Nile Delta production area
  • Eni’s African streak continues with its fifth oil discovery in Angola’s Block 15/06 at the Agidigbo prospect, bringing total resources to 1.8 billion barrels
  • Also in Angola, ExxonMobil and its partners are looking to invest further in offshore Block 15 that will see Sonangol take a 10% interest in the PSA
  • Russia’s Lukoil has inked a deal with New Age M12 Holding to acquire a 25% interest in the offshore Marine XII licence in the Republic of Congo for US$800 million, covering the producing Nene and Litchendjili fields
  • Buoyed by recent discoveries in the Caribbean, the Dominican Republic is launching its first licensing round in July, offering 14 blocks in the onshore Cibao, Enriquillo and Azua basins and the offshore San Pedro basin
  • W&T Offshore and Kosmos Energy have struck oil in the Gladden Deep well in the US Gulf of Mexico, the first of a four-well programme that includes the Moneypenny, Oldfield and Resolution prospects with estimates of 7 mmboe

Midstream & Downstream

  • Shell is increasing storage capacity at its Pulau Bukom refinery in Singapore, adding two new crude oil tanks to increase capacity by nearly 1.3 million barrels
  • A new swathe of American sanctions against Iran is now targeting Iranian petrochemical exports, clipping a major regional revenue source for Iran
  • Angola is looking overhaul its refining sector, by attracting investment o overhaul facilities and building a new refinery in Soyo that will be the third ongoing refining project after the 200 kb/d Lobito and Cabinda plants
  • BP and Mexico’s IEnova have signed a deal allowing BP to use IEnova’s new gasoline and diesel storage and distribution facilities in Manzanillo and Guadalajara, allowing access to over 1 million barrels of storage
  • British petrochemicals firm INEOS has announced plans to invest US$2 billion in building three new petchem plants in Saudi Arabia that would form part of the wider Saudi Aramco-Total Project Amiral petrochemicals complex
  • The saga of Russia’s bankrupt 180 kb/d Antipinsky refinery continues, with SOCAR Energoresurs (a JV including Sberbank) acquiring an 80% stake in the refinery with the aim of restarting operations
  • Mexico has kicked off construction of its US$7.7 billion oil refinery, aimed to overhauling the Mexican refining industry after years of underperformance

Natural Gas/LNG

  • Toshiba is exiting the Freeport LNG project in Texas, paying Total US$815 million and handing over its 20-year liquefaction rights by March 2020
  • China’s CNOOC has officially acquired a 10% stake in the Arctic LNG 2 project by Novatek, solidifying natural gas ties between Russia and China
  • Cheniere has taken FID to add a sixth liquefaction train to its Sabine Pass export project in Lousiaina, which would add 4.5 mtpa of capacity to the plant
  • Novatek, Sinopec and Gazprombank have created a China-focused joint venture to market LNG and natural gas from Novatek’s Arctic projects in China
June, 17 2019
Upcoming OPEC Meeting: What to Expect

A month ago, crude oil prices were riding a wave, comfortably trading in the mid-US$70/b range and trending towards the US$80 mark as the oil world fretted about the expiration of US waivers on Iranian crude exports. Talk among OPEC members ahead of the crucial June 25 meeting of OPEC and its OPEC+ allies in Vienna turned to winding down its own supply deal.

That narrative has now changed. With Russian Finance Minister Anton Siluanov suggesting that there was a risk that oil prices could fall as low as US$30/b and the Saudi Arabia-Russia alliance preparing for a US$40/b oil scenario, it looks more and more likely that the production deal will be extended to the end of 2019. This was already discussed in a pre-conference meeting in April where Saudi Arabia appeared to have swayed a recalcitrant Russia into provisionally extending the deal, even if Russia itself wasn’t in adherence.

That the suggestion that oil prices were heading for a drastic drop was coming from Russia is an eye-opener. The major oil producer has been dragging its feet over meeting its commitments on the current supply deal; it was seen as capitalising on Saudi Arabia and its close allies’ pullback over February and March. That Russia eventually reached adherence in May was not through intention but accident – contamination of crude at the major Druzhba pipeline which caused a high ripple effect across European refineries surrounding the Baltic. Russia also is shielded from low crude prices due its diversified economy – the Russian budget uses US$40/b oil prices as a baseline, while Saudi Arabia needs a far higher US$85/b to balance its books. It is quite evident why Saudi Arabia has already seemingly whipped OPEC into extending the production deal beyond June. Russia has been far more reserved – perhaps worried about US crude encroaching on its market share – but Energy Minister Alexander Novak and the government is now seemingly onboard.

Part of this has to do with the macroeconomic environment. With the US extending its trade fracas with China and opening up several new fronts (with Mexico, India and Turkey, even if the Mexican tariff standoff blew over), the global economy is jittery. A recession or at least, a slowdown seems likely. And when the world economy slows down, the demand for oil slows down too. With the US pumping as much oil as it can, a return to wanton production risks oil prices crashing once again as they have done twice in the last decade. All the bluster Russia can muster fades if demand collapses – which is a zero sum game that benefits no one.

Also on the menu in Vienna is the thorny issue of Iran. Besieged by American sanctions and at odds with fellow OPEC members, Iran is crucial to any decision that will be made at the bi-annual meeting. Iranian Oil Minister Bijan Zanganeh, has stated that Iran has no intention of departing the group despite ‘being treated like an enemy (by some members)’. No names were mentioned, but the targets were evident – Iran’s bitter rival Saudi Arabia, and its sidekicks the UAE and Kuwait. Saudi King Salman bin Abulaziz has recently accused Iran of being the ‘greatest threat’ to global oil supplies after suspected Iranian-backed attacks in infrastructure in the Persian Gulf. With such tensions in the air, the Iranian issue is one that cannot be avoided in Vienna and could scupper any potential deal if politics trumps economics within the group. In the meantime, global crude prices continue to fall; OPEC and OPEC+ have to capability to change this trend, but the question is: will it happen on June 25?

Expectations at the 176th OPEC Conference

  • 25 June 2019, Vienna, Austria
  • Extension of current OPEC+ supply deal from end-June 2019 to end-December 2019
June, 12 2019
SHORT-TERM ENERGY OUTLOOK

Forecast Highlights

Global liquid fuels

  • Brent crude oil spot prices averaged $71 per barrel (b) in May, largely unchanged from April 2019 and almost $6/b lower than the price in May of last year. However, Brent prices fell sharply in recent weeks, reaching $62/b on June 5. EIA forecasts Brent spot prices will average $67/b in 2019, $3/b lower than the forecast in last month’s STEO, and remain at $67/b in 2020. EIA’s lower 2019 Brent price path reflects rising uncertainty about global oil demand growth.
  • EIA forecasts global oil inventories will decline by 0.3 million barrels per day (b/d) in 2019 and then increase by 0.3 million b/d in 2020. Although global liquid fuels demand outpaces supply in 2019 in EIA’s forecast, global liquid fuels supply is forecast to rise by 2.0 million b/d in 2020, with 1.4 million of that growth coming from the United States. Global oil demand rises by 1.4 million b/d in 2020 in the forecast, up from expected growth of 1.2 million b/d in 2019.
  • Annual U.S. crude oil production reached a record 11.0 million b/d in 2018. EIA forecasts that U.S. production will increase by 1.4 million b/d in 2019 and by 0.9 million b/d in 2020, with 2020 production averaging 13.3 million b/d. Despite EIA’s expectation for slowing growth, the 2019 forecast would be the second-largest annual growth on record (following 1.6 million b/d in 2018), and the 2020 forecast would be the fifth-largest growth on record.
  • For the 2019 summer driving season, which runs from April through September, EIA forecasts that U.S. regular gasoline retail prices will average $2.76 per gallon (gal), down from an average of $2.85/gal last summer. The lower forecast gasoline prices primarily reflect EIA’s expectation of lower crude oil prices this summer.

U.S. residential electricity price

West Texas Intermediate (WTI) crude oil price

World liquid fuels production and consumption balance


Natural gas

  • The Henry Hub natural gas spot price averaged $2.64/million British thermal units (MMBtu) in May, almost unchanged from April. EIA expects strong growth in U.S. natural gas production to put downward pressure on prices in 2019. EIA expects Henry Hub natural gas spot prices will average $2.77/MMBtu in 2019, down 38 cents/MMBtu from 2018. EIA expects natural gas prices in 2020 will again average $2.77/MMBtu.
  • EIA forecasts that U.S. dry natural gas production will average 90.6 billion cubic feet per day (Bcf/d) in 2019, up 7.2 Bcf/d from 2018. EIA expects natural gas production will continue to grow in 2020, albeit at a slower rate, averaging 91.8 Bcf/d next year.
  • U.S. natural gas exports averaged 9.9 Bcf/d in 2018, and EIA forecasts that they will rise by 2.5 Bcf/d in 2019 and by 2.9 Bcf/d in 2020. Rising exports reflect increases in liquefied natural gas exports as new facilities come online. Rising natural gas exports are also the result of an expected increase in pipeline exports to Mexico.
  • EIA estimates that natural gas inventories ended March at 1.2 trillion cubic feet (Tcf), 15% lower than levels from a year earlier and 28% lower than the five-year (2014–18) average. EIA forecasts that natural gas storage injections will outpace the previous five-year average during the 2019 April-through-October injection season and that inventories will reach almost 3.8 Tcf at the end of October, which would be 17% higher than October 2018 levels and about equal to the five-year average.

Electricity, coal, renewables, and emissions

  • EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 35% in 2018 to 37% in 2019 and to 38% in 2020. EIA forecasts that the share of generation from coal will average 24% in 2019 and 23% in 2020, down from 27% in 2018. The forecast nuclear share of generation falls from 20% in 2019 to 19% in 2020, reflecting the retirement of some nuclear reactors. Hydropower averages a 7% share of total generation in the forecast for 2019 and 2020, similar to 2018. Wind, solar, and other nonhydropower renewables together provided 10% of U.S. generation in 2018. EIA expects they will provide 11% in 2019 and 13% in 2020.
  • EIA forecasts that renewable fuels, including wind, solar, and hydropower, will collectively produce 18% of U.S. electricity in 2019 and almost 20% in 2020. EIA expects that annual generation from wind will surpass hydropower generation for the first time in 2019 to become the leading source of renewable electricity generation and maintain that position in 2020.
  • EIA forecasts that U.S. coal consumption, which reached a 39-year low of 687 million metric tons (MMst) in 2018, will fall to 602 MMst in 2019 and to 567 MMst in 2020. The falling consumption reflects lower demand for coal in the electric power sector.
  • After rising by 2.7% in 2018, EIA forecasts that U.S. energy-related carbon dioxide (CO2) emissions will decline by 2.0% in 2019 and by 0.9% in 2020. EIA expects U.S. CO2 emissions will fall in 2019 and in 2020 because its forecast assumes that temperatures will return to near normal, and because the forecast share of electricity generated from natural gas and renewables increases while the forecast share generated from coal, which produces more CO2 emissions, decreases. Energy-related CO2 emissions are sensitive to weather, economic growth, energy prices, and fuel mix.

U.S. natural gas prices


U.S. residential electricity price

West Texas Intermediate (WTI) crude oil price

June, 12 2019