UPDATE: IHS Markit’s Hurricane Harvey report

Logistics

The port of Corpus Christi is open with apparently no restrictions since Occidental loaded a crude tanker in the port over the weekend. This port exports crude from both the Eagle Ford and Permian shale basins. 

Freeport is open too and is the terminus of the Seaway pipeline that brings crude from Cushing. However, it is unclear if draft restrictions have yet been eliminated.

Around the Houston area the story is not as clear cut. Our understanding is that Beaumont and Port Arthur were for the most part closed as of 4 September. Apparently the Coast Guard is allowing some barge traffic into Port Arthur and may consider allowing ships to enter starting 6 September.

The Coast Guard announced last Friday the Galveston Bay entrance channel, outer bar channel, inner bar channel, bolivar roads anchorages, bolivar roads channel and Galveston harbor are open. It also stated that the Texas City channel, Texas City turning basin and industrial canal are also open.

The Houston ship channel is open but with restrictions. Ships up to 40 ft draft are allowed up to around the ExxonMobil refinery at Baytown compared to a normal draft of 45 ft. And in the upper reaches of the channel only barge traffic is allowed. As ships are allowed in and experience no difficulty in navigating the Coast Guard will gradually allow larger ships into the channel.

Trucking activity in the Houston area remains disrupted by flooding, and costs for chemical and plastics shippers looking to secure truck capacity and move backlogged freight will rise. 

Relief efforts are claiming truck capacity that would otherwise be dedicated to commercial and industrial shippers. Inbound rates to Houston are rising by double digits on spot market load boards. Trucking services are likely to remain disrupted for several months, not weeks. Truck rates will rise most significantly locally, but also nationwide. 

Crude

As of Tuesday, the volume of Gulf of Mexico crude oil production shut-in had declined to about 121 000 bpd (equal to around 7% of total Gulf production). 

Natural gas production shut-in has now declined to about 0.26 billion ft³/d (about 8% of Gulf production). Some production remains offline because of ongoing takeaway constraints. 

In the onshore segment, key Eagle Ford operators are reporting a quick ramp up in production, and are nearing pre-storm levels. There are still no reports of damage to crude-producing operations, and companies are returning personnel to complete inspections and resume operations. These are key signposts that production will continue to recover in the days ahead.

Key ports and pipeline system are re-opening, which will alleviate logistical bottlenecks that had threatened to further weaken inland crude prices.

Occidental Petroleum’s Corpus Christi export terminal shipped its first crude cargo since the storm over the weekend. 

Corpus Christi is a critical destination for both consumption and export of Permian and Eagle Ford crude. Magellan’s Longhorn and Bridgetex pipelines (which deliver crude from the Permian Basin to the Houston area) re-started on Friday, as did the company’s crude distribution system in Houston. 

Refining

The Labor Day weekend brought nothing but good news for the US refining sector. 

At least two of the 20 affected refineries (Valero’s Corpus Christi and Texas City plants) were officially at ‘normal’ run rates on Tuesday, with several others projected to join them in the next 48 hours. 

Only five Gulf Coast refineries were neither operational nor actively starting up as of Monday 4 September – and four of these are expected to begin that process this week. 

The amount of crude distillation capacity offline as of 5 September (including IHS Markit estimates of refineries operating below normal rates) is about 3.4 million bpd, or approximately 19% of the US total. This is down from upwards of 25% late last week and IHS Markit expects this fraction to decline to less than 10% by this weekend.

Meanwhile, the Magellan and Explorer Pipeline systems (two of Houston’s three primary outbound product pipelines) both resumed operations over the weekend. 

Colonial Pipeline, the third outbound system and by far the largest in the country, resumed deliveries along its distillate line on Tuesday and plans to restart its gasoline line today. 

In the meantime, tanker shipments from Europe have also surged over the past week as the broader Atlantic Basin refining system reacts.

Questions still remain about the status of a few key Gulf Coast refineries, but the recent positive developments have certainly tempered market fears of a gasoline supply crunch. 

Spot gasoline prices are declining and the growth in retail prices has slowed dramatically. To be sure, even if a few refineries do remain offline for several weeks, the US and the broader Atlantic Basin refining system should have no issues meeting demand.

All this said, the potential exists for continued tightness (or even shortfall) in some markets given that Hurricane Irma is currently bearing down on Florida. That state’s gasoline supplies were effectively cut off by Harvey and are unlikely to get replenished before Hurricane Irma disrupts shipping routes. Much will depend on how Irma evolves, but Florida is certainly the most vulnerable market at this point.

Natural gas

Demand weakness continues across the US, and one component, LNG exports, lingers as the most significant remaining effect of Hurricane Harvey. 

LNG exports through the Sabine Pass terminal are expected to average only 0.4 Bbillion ft³/d for the first five days of September, according to Opis/PointLogic tracking data, while for the last five days of August, including the landfall and direct aftermath of Harvey, exports averaged 1.6 billion ft³/d.

Sabine Pass has not had a ship off take gas since 24 August, and on-site storage is becoming an issue. Hurricane Harvey has reduced ship traffic in and around the Port Arthur, Texas area. 

Without the steady off take from ships in the Gulf, Sabine Pass is constrained in its ability to take in gas from the grid and liquefy it. As a result, a bottlenck is forming that has impacted gas delivered to facility from Creole Trail, Transco Pipeline and NGPL.

NGPL further confirmed a force majeure on its system, which began on 28 August, due to limited access in the region due to Hurricane Harvey, and flows to the facility from the pipeline have been zero since that date.

Mexican exports are back over 4.0 billion ft³/d after falling below 3.6 billion ft³/d during Hurricane Harvey. Canadian net imports have been steady at 5.5 billion ft³/d over the past two weeks.

As a result of the slowdown in LNG exports, the lower 48 U. has been a net importer of natural gas over the past six days, by an average of 1.0 billion ft³/d.

Natural gas liquids (NGLs)

As of 5 September, NGL operations at Mont Belvieu, Texas and the Permian Basin are returning to normal quickly. 

Enterprise Products Partners said on Tuesday that it has restored service at substantially all of its major assets impacted by Hurricane Harvey. 

Enterprise's marine terminals have largely returned to service, as port restrictions remain in place at certain facilities, the company said. Enterprise's two marine terminals on the Houston Ship Channel have resumed commercial service as loadings of ethane and LPG ships have resumed. In South Texas, the partnership's eight natural gas processing plants and two NGL fractionators have resumed full operations. In addition, Enterprise's NGL pipelines in South Texas are in commercial service. With respect to pipeline operations, issues have been minimal and have not prevented movements on Enterprise's mainlines. Operationally, the partnership continues to face challenges resulting from curtailments or allocations by some critical third party service providers. 

DCP Midstream said late Thursday last week that it was in the process of restarting several of its Permian Basin gas plants that had been previously curtailed due to third party pipeline and fractionation constraints. Two plants remained shut in.

In other operations, DCP said it restarted a 200 million ft³/d gas plant in the Eagle Ford area Thursday, though at reduced volumes. Four additional plants with 645 million ft³/d of capacity remained shut in. 

DCP’s Sand Hills, Southern Hills and other NGL pipelines into the Gulf Coast "have continued to operate and remain fully operational," DCP said.

Earlier in the week, DCP reported that five Permian-based gas plants, representing 160 million ft³/d of gas, had been taken offline and that around 845 million ft³/d of South Central Texas capacity was down as an indirect result of the storm in the Gulf.

NGL production from refineries is also quickly returning to normal as those hit in the South Texas and Houston area are returning to normal operations.

The return of supply and export terminal capacity to begin the week after the Labor Day holiday has had global implications on NGL pricing. LPG prices started the week after the Labor Day holiday weaker with the propane to crude ratio falling from 72 – 70%.

Additionally, the Japanese to Mont Belvieu propane differential fell from levels in the US$90s to the US$80s to begin the week as export terminals return to normal operations.

The complete report is available here.

Read the article online at: https://www.worldpipelines.com/business-news/07092017/update-ihs-markits-hurricane-harvey-report/