Tuesday, August 29, 2017

Harvey's Hit on Energy

Prognosticators are starting to talk about the effect of Harvey on Houston's oil and gas business which accounts for about a third of Houston's economy.  To understand the potential impact,of Harvey on the US energy sector it's important to distinguish between oil production and oil refinery capacity.

Based on the latest reports from Energy Information Administration, about 17% of total US crude oil production and 5% of domestic dry natural gas comes out of the Gulf of Mexico region.  48% of US crude oil production in 2016 came from "tight oil resources" where oil is extracted from rock formations like shale.  About a decade ago, oil production from the Gulf accounted for about 30% of total US output.  The shale revolution reduced Houston's importance in oil production, and the resulting impact of Harvey on the nation's oil production capacity.

Houston remains an important center for oil refinery operations, both for petroleum and natural gas processing.  Oil refineries in the Gulf of Mexico have a capacity of 8.6 million barrels of oil per day, about 45% of the nation's refining capacity.  Harvey is responsible for taking about 2.2 million barrels per day of capacity offline.

The expansion of tight oil production makes the US oil supply less vulnerable to hurricanes.  But, hasn't changed our vulnerability to flooding and accompanying refinery shut downs in the Gulf region.  On Monday, gasoline futures were up nearly 5%, likely in anticipation of gas shortages and gas price hikes.

The US Energy Information Administration has the latest data and a cool interactive map showing Gulf area energy infrastructure with real time storm information.

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