New York Times - Economy

Storm’s Impact on Oil Industry Is Felt at Gasoline Pumps

Still, the effects are likely to ripple across the globe. Mexico and other Latin American markets that have come to depend on American gasoline and crude oil will have to turn to Europe and elsewhere, putting them in competition with American markets for the same supplies and probably compounding the impact of higher prices.

The amount of refined petroleum products affected by the storm has risen daily, to 3.3 million barrels on Thursday from two million on Tuesday, according to a report by IHS Markit, an analytics and consultancy firm.

Five of Houston’s nine refineries are shut down, though no serious permanent damage has been reported. Floodwaters continue to rise in areas, potentially jeopardizing the city’s other refineries, already operating below normal levels.

Serious flooding may also be a problem in Beaumont and Port Arthur, where Exxon Mobil, Saudi Aramco-Motiva, Total and Valero have large refineries.

The operator of the Colonial Pipeline has said operations from Texas will resume as soon as refining safely does, but probably no earlier than Sunday. The pipeline, which normally carries more than 15 percent of the fuel consumed nationwide, continues to operate east of Lake Charles, taking petroleum products north.

Even when the refineries start again, problems will remain at the port of Houston. The Coast Guard, already overburdened, needs to remove debris to protect docking vessels, and flooded railways and roads may keep dockworkers from unloading vessels and putting cargo on trains and ships.

The storm’s impact has been felt in oil and gas production as well as refining. Output from offshore platforms is down nearly 20 percent. Oil companies are beginning to return to the platforms to inspect possible damage from the storm, a process that could take weeks, before near full production can resume.

Meanwhile, flooding in the Eagle Ford shale field in southern Texas has cut production by an estimated 300,000 barrels a day. That is only about 3 percent of national production, but more important may be permanent damage to the shale wells. That is an engineering and geological uncertainty since the long horizontal wells, blasted through hard rock, are relatively new and have never been seriously tested by flooding.

The most important shale field in the country, the Permian Basin in West Texas, was not directly hit by the storm. But with refineries closed along the coast, pipelines out of the Permian have been shut off, and production is already declining. Fuel supplies necessary to keep the drilling rigs going may also fall short because of the refinery shutdowns.

“We’re going to see a curtailment of production levels because the refineries can’t take the product,” said Steve J. McCoy, a senior executive at Latshaw Drilling, an Oklahoma company active in the Permian. “We’re kind of worried about the availability of diesel out here, and that, too, could have an impact.”

That may spur new production in other shale fields, like the Bakken field of North Dakota, where costs of production are usually higher than in West Texas.

Ed Hirs, an energy finance professor at the University of Houston, predicted that “this interruption may help Bakken producers as they ship more crude to the Pennsylvania and New Jersey refiners, and it will throw a temporary lifeline to the refiners in Pennsylvania and New Jersey.”

The flooding has also knocked out trucking routes to gasoline stations, and many stations in Texas and Louisiana are out of fuel or flooded.

Some relief is coming from nuclear power. Two reactors outside Houston are running at full capacity and suffered no serious damage. That is helping to keep the lights on for thousands of residential and business customers.

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