Hurricane Forces Refineries to Shut Down, Worst Impact May Be to Come

By Christopher M. Matthews and Dan Molinski Features Dow Jones Newswires

Hurricane Harvey forced refineries that make up nearly 5% of U.S. fuel-making capacity to shut down, and more facilities remained under threat as the storm moved through the heart of the nation's oil and gas infrastructure.

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Valero Energy Corp., Flint Hills Resources and Citgo Petroleum Corp. closed refineries in and around Corpus Christi, Texas, that can handle a combined 840,000 barrels-a-day of crude oil before Harvey made landfall as a Category 4 hurricane nearby Friday night.

"Valero's Corpus Christi and Three Rivers refineries are conducting a thorough assessment of refinery status and potential impacts from hurricane Harvey's landfall," Valero said in a statement Saturday. The company didn't estimate when the refineries, which can process a combined 380,000 barrels a day, would restart.

While Harvey lost some of its power after moving inland Saturday, becoming a tropical storm by early afternoon, its worst impact on the U.S. supply of gasoline and other fuels may yet be to come.

More than 3 million barrels of refining capacity is located around Houston, 200 miles north of Corpus Christi, and Port Arthur further east along the Gulf Coast, which could get anywhere from 15 inches to 30 inches of rain as the storm passes through over the weekend and into next week. Harvey is expected to linger over the area until Tuesday.

Most refiners in the Houston area remained operational early Saturday as they wait to see extent of flooding. Long-term refinery outages could cause fuel shortages and drive up the price of gasoline significantly as more than one third of U.S. refining capacity is in the storm's path.

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Concerns over the impact of refinery closures on U.S. fuel supplies caused gasoline prices in futures markets to whipsaw in recent days. The RBOB October gasoline contract price spiked nearly 10 cents a gallon on Wednesday and Thursday, to $1.59/gallon. But on Friday, the price dropped back to $1.54/gallon as some investors felt the hurricane impact on a still-oversupplied market might be short-lived.

Exxon Mobil Corp., Marathon Petroleum Corp. and Philips 66, which operate refineries near Houston, said they were monitoring the storm but hadn't made announcements of any closures.

Exxon's Gulf Coast refineries, including its 560,000-barrel-a-day Baytown refinery outside Houston, and its 365,000-barrel-a-day refinery in Beaumont, Texas, "are still operating as normal," said spokeswoman Suann Guthrie.

The Gulf Coast is the largest refining hub in the world and the epicenter of U.S. gasoline production. The Texas portion of the coast alone is home to more than 4.9 million barrels a day of refining capacity, out of more than 19 million barrels overall, according to the U.S. Energy Information Administration and analysts.

Clint Follette, a partner at Boston Consulting Group, said refineries in the storm's path that hadn't closed may have already lowered capacity and reduced staff as they await a final decision on the threat of flooding.

"Flooding can take a refinery down for a substantial period of time," Mr. Follette said. "Inspection, repairs, getting things up and running and restoring power, can be costly and time consuming."

Past storms to hit the Gulf Coast, including hurricanes Rita and Katrina in 2005, caused crude prices to rise between 4% and 6%. During Katrina, gasoline prices soared by as much as 70 cents a gallon in some parts of the country immediately after the storm, while shortages lingered for days.

The last hurricane to hit Texas was Hurricane Ike in 2008, when oil prices were falling amid the financial crisis. Ike forced more than a dozen refineries to close, largely due to flooding. Exxon Mobil's Baytown refinery, one of the nation's largest, took more than a month to start up again. Ike did less damage to refineries than Katrina but still caused prices to spike by 30 cents a gallon in the Southeast.

Another concern for refiners is the potential loss of power caused by the storm. More than 200,000 customers were already without power Saturday, according to utility AEP Texas.

Outages can also affect vital pipelines that supply gasoline to other parts of the country. Following Hurricane Katrina, the Colonial pipeline, which carries fuel from the Gulf Coast north to New York, was shut down for 55 hours.

To get the line pumping again, Colonial had to race against the clock to restore electricity after the Gulf Coast's power grid collapsed as it competed with federal authorities to get its hands on emergency generators and coaxed utilities to restore power.

Colonial spokeswoman Malesia Dunn said Saturday there hadn't been any impact to the company's lines and operations.

After Katrina, the departments of Energy and Homeland Security asked energy companies to stock up on emergency generators.

Phillips 66 spokesman Rich Johnson said that following Katrina the company made improvements to its storm water protection systems to guard its electrical equipment from floodwaters.

Marathon Petroleum said it has also hardened some of its refineries where appropriate to protect against storm and wind damage.

Write to Christopher M. Matthews at christopher.matthews@wsj.com and Dan Molinski at Dan.Molinski@wsj.com

(END) Dow Jones Newswires

August 26, 2017 15:17 ET (19:17 GMT)