Several Houston-Area Refineries Shut Down as Harvey Dumps More Rain

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

Several Houston-area refineries were shut down Sunday, taking roughly 12% of U.S. fuel-making capacity out of commission, as Hurricane Harvey continued to drench the city.

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Exxon Mobil Corp. closed its massive Baytown refinery in a Houston suburb -- the second largest in the U.S. -- as torrential floodwaters from the storm paralyzed large portions of the area.

The plant, located on the Houston Ship Channel, can process up to 560,000 barrels of oil a day and feeds fuel into pipelines and barges that move it from Texas to states across the southeast and up the East Coast.

Royal Dutch Shell PLC confirmed it stopped making fuel at its 325,000-barrel-a-day plant in Deer Park, Texas, and Brazil's state-controlled oil company, Petróleo Brasileiro SA, shut down its Pasadena plant near Houston that can process up to 110,000 barrels of oil a day.

The companies said they are assessing damage from the hurricane, which has produced torrential flooding and spawned several tornadoes. Even if the plants didn't sustain much damage, they count on the Houston Ship Channel, a vital waterway for the U.S. energy industry, to move imported crude oil into the state and refined fuels out. It has been shut since Friday.

All the refineries in the Corpus Christi, Texas area that was hard-hit by the hurricane are already closed, so the Houston plant closures compound concerns about fuel shortages that could develop in the coming days and weeks as the rain continues.

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In all, more than 2 million barrels a day of fuel-making capacity is down.

One bright spot: Valero Energy Corp. said its two Corpus Christi-area refineries that were shut ahead of the storm didn't sustain much damage, so the company is looking for a way to restart operations, but bringing them back also requires the port to be functional. The company didn't give an estimate as to when those plants would go back into service.

While Harvey has been downgraded from hurricane status, the storm continues to dump rain and spawn tornadoes as it moves through the heart of the nation's oil infrastructure.

The Texas coast is home to nearly 30% of U.S. refining capacity and Houston-area plants account for roughly half of that. Houston is also the starting point of the Colonial Pipeline, a massive fuel-moving artery that takes gasoline, diesel and jet fuel as far north as New York. As of Sunday afternoon there were no impacts to the Colonial pipeline's operations.

But Magellan Midstream Partners, which runs several oil and fuel pipelines into and out of Houston, has suspended many of its operations. Its refined petroleum pipelines carry gasoline and other fuels into 12 Midwest states, from Oklahoma to Illinois.

The worst impact on the U.S. supply of gasoline and other fuels may yet be to come. The Port Arthur region east of Houston is home to four more big fuel-making plants that could go down. Harvey is expected to linger over Texas until Tuesday, dropping another 15 to 30 inches of rain.

Markets were closed Sunday, but volatile trade is expected Monday when they open. The U.S. has significant stockpiles of gasoline and diesel in storage tanks around the country, which should help blunt some of the supply impacts.

Long-term refinery outages could cause fuel shortages and drive up the price of gasoline significantly around the U.S.

Concerns over the impact of refinery closures on U.S. fuel supplies caused volatile gasoline prices in futures markets in recent days. The actively traded 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.

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."

Harvey has also shut down several big offshore oil and gas platforms in the Gulf of Mexico, with roughly 22% of offshore oil production now stopped.

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 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 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.

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

(END) Dow Jones Newswires

August 27, 2017 14:57 ET (18:57 GMT)