Harvey Also Hits Chemical Companies and Manufacturing Enterprises

by | Aug 31, 2017

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Hurricane Harvey didn’t just knock out electric power for tens of thousands. It also took out oil and gas refineries and terminal operations, which will affect chemical and manufacturing facilities that rely on the raw materials that are ultimately produced from such operations.

Indeed, supplies of so-called petroleum coke will be limited for months to come, which will ultimately increase the cost of doing business — costs that will be passed on to customers when they pay for everyday products. Petroleum coke, or petcoke, is a carbon-rich material that is derived from oil refining.

According to S&P Global Platts, Hurrican Harvey could temporarily shudder operations that produced between 2.4 million and 3.4 million barrels of day of Texas refining capacity.

The story goes on to say that port conditions are such that vessels cannot get in or out of the terminals.  “This port closure has an immediate impact on our Houston Bulk Terminal facility, as vessels scheduled to transit to our berth to conduct loading operations are unable to do so,” the story quotes port authorities as saying in a letter to petcoke customers. “In addition, this closure will likely result in a backlog of vessels scheduled to load at our facility.”

Meantime, gasoline futures spiked to a two-year high on Wednesday, given that Harvey shut down nearly a quarter of US refinery capacity, according to Reuters. It estimates 4.4 million barrels US refining capacity has been taken off line — a quarter of the US refining capacity. Global markets, too, will be affected, adds Barclays via the Wall Street Journal: 6% of the global demand for oil and other petroleum liquid fuels emanate from the region; that includes Latin America, Europe and Asia.

The good news, though, is that inventories had been high, which have helped offset the current dynamics. While the country will have plenty of oil, it will have limited ability to refine that into gasoline in the coming weeks. As a result, airlines are raising prices.

“As the refineries restructured the more competitive refineries have expanded,“ said Antoine Halff, Director of the Global Oil Markets Research Program at Columbia University, per Reuters. ”The capacity is now in the hands of a few very large players in a few very large plants. It means if something goes wrong it’s a big impact.”

Houston is the cornerstone for the US oil and gas industry, including refined products that move in-and-out of local ports. The five largest oil refineries in the US are in Texas and Louisiana, all along the Gulf Coast. As the rain begins to ease up, however, production is expected to resume.

If natural gas markets also remain disrupted, steel, chemical and fertilizer manufacturers will be among those to be impacted. Production in these industries require natural gas as a feedstock to produce materials such as the steel piping used in oil and gas drilling as well as the steel parts to make power plants and gas turbines.

They are making use of both “dry” natural gas and the “wet gas” that is separated from it. Those so-called natural gas liquids are comprised of such chemicals as butane, ethane, methane and propane — all of which can serve as the foundation for finished goods that are consumed domestically and exported around the globe.

Manufacturers and chemical producers had been paying as much as $14 per million Btus in 2005 and now they are paying close to $3 per million Btus — something that IHS Markit says will lead to an additional $328 billion in new manufacturing output by 2025. Futures are up 1.1% since the storm hit. 

“The storm is also capable of further pipeline disruptions that could trigger short-term price swings,” Robbie Fraser, commodity analyst at Schneider Electric said, in a Wall Street Journal story.

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