The Gulf of Mexico is home to nearly 20% of total U.S. crude oil production, approximately 84% of the Gulf oil supply comes from deepwater facilities and the Gulf Coast region accounts for more than 45% of total U.S. refining capacity.
More than 25% of U.S. refining capacity is located toward the Texas coast. So, as major storms such as Hurricane Harvey make their way through this area, tracking the storm’s path is critical to determining how much of the entire transportation fuels infrastructure will be affected, and the time it may take to bring operations back online quickly and safely.
The American Petroleum Institute has developed guidelines to help the U.S. oil and natural gas industry prepare for hurricanes and other natural or man-made disasters, including steps for resuming refinery operations after a storm.
The following are steps the industry takes to prepare for and return after a storm:
- Refiners, in the hours before a large storm makes landfall, will usually evacuate all non-essential personnel and begin shutting down or reducing operations.
- Operations in areas not forecast to take a direct hit from the storm often are shut down or curtailed as a precaution because storms can change direction with little notice.
- Once safe, teams come in to assess damage. If damage or flooding has occurred, it must be repaired and dealt with before the refinery can be brought back online.
- Other factors that can cause delays in restarting refineries include the availability of crude oil, electricity to run the plant and water used for cooling the process units.
- Refineries are complex. It takes more than a flip of a switch to get a refinery back up and running. Once a decision has been made that it is safe to restart, it can take several days before the facility is back to full operating levels. This is because the process units and associated equipment must be returned to operation in a staged manner to ensure a safe and successful startup.
- If facilities are undamaged or necessary repairs have been made, and ancillary facilities like pipelines that carry the oil and natural gas are undamaged and ready to accept shipments, operators will begin restarting production.
Pipeline operations can also be impacted by storms, primarily through power outages, but also by direct damage. If there is no product flowing through the pipelines due to Gulf Coast/Gulf of Mexico crude or natural gas production being curtailed, or because of refinery shutdowns, the crude and products already in the pipelines cannot be pushed out the other end. When crude oil and petroleum products cannot be moved through pipelines, supply disruptions can occur at retail fuel locations.
When disruptions occur, “When Mother Nature Strikes” explains that fuel retailers, who often receive multiple shipments each day, are susceptible to changes in product availability and volatile wholesale prices. During disasters, retailers receive frequent updates from their suppliers alerting them to changes in wholesale prices and limitations on fuel supplies in their regions. Retailers selling branded fuel may incur price increases and be limited in their access to fuel. Retailers selling unbranded fuel, however, experience the most dramatic price increases and could be denied access to volume because the refiners focus on satisfying their contractual obligations first. In either case, retail prices react.
In addition to disruptions in the production and distribution of refined product to retail, along with the associated changes in costs and prices, another major challenge in the aftermath of a storm is the lack of power, which is required to operate retail fuel pumps. Even if retailers have fuel, they may not have electricity to operate their stores.
For other retailers who might have power either from the grid or through emergency generators, receiving product deliveries could be limited even after refinery and pipelines are returned to operation. For example, road closures can inhibit transport trucks from accessing some stores, and many retailers are limited on the volume they can receive each day as their suppliers seek to allocate available product across their entire service area. Also, because many stores incur a surge in fuel demand immediately preceding a storm, dramatically depleting market inventories beyond what would occur in a typical day, it can take time for these inventories to be restored to adequate levels. The fuel distribution market is designed to efficiently deliver a certain volume of fuel each day to replace consumption, but responding to surge demand can take time and result in continued supply restrictions.
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