Hurricane Laura is set on a collision course with America’s refinery row. Forecast to grow into a Category 3 storm before landfall early Thursday morning, Laura will strike near the border of Texas and Louisiana.
The nation’s biggest refinery, Saudi Aramco’s 600,000 bpd plant in Port Arthur, Texas, near the Louisiana border, could get a direct hit. It has already shut down, as have others in Port Arthur including Total’s 225,00 bpd refinery, and Valero’s 335,000 bpd.
They may not reopen for awhile. “The energy patch is facing a potentially cataclysmic situation in the next 48 hours,” says Robert Yawger at Mizuho Securities. On Tuesday afternoon the National Weather Service warned that Laura’s storm surge could overwhelm the Port Arthur Hurricane Flood Protection system and penetrate 30 miles inland through coastal swamps and lowlands. Water levels will begin to rise Wednesday.
In the 650 mile stretch between Corpus Christi and Mississippi are plants that process 8.4 million barrels of crude petroleum per day. So far more than half of those plants have shut down operations in anticipation of the arrival of Laura, with her potential 115 mile per hour winds and 10-foot storm surge.
If Laura comes ashore a little farther west, Marathon Petroleum MPC ’s 585,000 Galveston Bay refinery could take the brunt of it. On Tuesday morning Galveston authorities announced a mandated evacuation from the island. They have reason to be concerned; the Great Galveston Hurricane of 1900, believed to have been a Cat 4, killed 6,000.
Numerous other refineries and chemical plants line the Houston Ship Channel, include Exxon XOM Mobil’s 560,000 bpd Baytown plant. (A slap in the face after Exxon’s unceremonious ouster from the Dow Jones Industrials.)
In addition to refineries being shut down, oil fields out in the Gulf of Mexico have to be curtailed as well. Currently, Gulf production platforms have shut in about 1.5 million bpd, or 80% of volumes.
Still, crude oil futures are calm despite the coming fury. West Texas Intermediate was nearly unchanged at $42 per barrel — just off six-month highs a few days ago.
Although the lines at Houston gasoline stations have grown long on Tuesday afternoon, Neil Mehta, analyst with Goldman Sachs GS , has little concern that transient storm outages will have much impact on gasoline supplies.
With the pandemic having reduced fuel demand, inventories of gasoline and diesel are running well above 5-year averages. Refinery utilitization has already been depressed at 80% vs. 95% back in 2017 when Hurricane Harvey brought devastating flooding.
If a devastating storm must hit these plants, it might as well be now. According to research from analyst Oswald Clint at Bernstein, profitability for refiners hasn’t been worse since November 2009, with a margin of just $1.75 per barrel, versus $7.50 long-term average.
Harvey was a Category 4 storm when it came ashore south of Houston at Freeport, sparing the refineries. But it wasn’t as much Harvey’s winds, as it was the incessant 40 inches of rain that collected as the system stalled out above Houston for four days.
Before Harvey, the last big hits came in 2005 with the trio of Katrina, Rita and Wilma. Rita, a Cat 3 at landfall, roared ashore near Port Arthur, causing severe damage to numerous refineries including Valero’s, knocking them out for weeks.
As of the 5pm advisory Laura had winds of 80 mph and pressure of 990 mb.