Factbox: US Gulf energy industry braces for impact from two storms

New York — The US Gulf Coast energy industry was preparing for the arrival of two storms Aug. 24, as Tropical Storm Marco was due to make landfall on the eastern Louisiana coast, while Tropical Storm Laura was expected to strengthen into a hurricane before hitting the Texas/Louisiana border early Aug. 27.

Oil and gas offshore producers have been shutting in output ahead of the storms. By Aug. 24, upstream operators had shut about 1.523 million b/d of oil, or 82.4% of offshore production, and 1.542 Bcf/d of natural gas, 56.9% of offshore production, according to the US Bureau of Safety and Environmental Enforcement.

"The 2020 Atlantic hurricane season...is expected to be higher than the average and has the potential to significantly disrupt production from the US Gulf of Mexico as well as imports, exports and refining capacity in the area," according to S&P Global Platts Analytics.

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Over 50% of US refining capacity is on the Gulf Coast, with PADD III refining capacity, including condensate splitters, totaling over 10 million b/d. Of that, 9.6 million b/d is in Texas, Louisiana and Mississippi.

"Depending on the severity, disruptions can last for a matter of days, and most notably hurricanes Rita and Katrina, upended operations during the fall of 2005," Platts Analytics said. "These historic storms led to some refineries being shuttered for weeks/months as extensive repairs became necessary."

However, they added that refiners are currently cutting refinery runs because of weak demand owing to the coronavirus.

PRICES

OIL

**NYMEX September RBOB settled 8.3 cents higher at $1.3671/gal, while NYMEX September ULSD settled up 3.96 cents at $1.2476/gal.

**NYMEX October crude settled up 28 cents at $42.62/b, as production losses in the Gulf of Mexico were offset by high inventories and low demand stemming from the coronavirus pandemic.

**Production outages boosted spot crude differentials for offshore grades. Heavy Louisiana Sweet was assessed at a $2.75/b premium to cash WTI on Aug. 27, up $1.60/b. Medium sour Mars was assessed at a $2.25/b premium to WTI, up 45 cents.

NATURAL GAS

**Natural gas prices rallied ahead of the storms as production was shut in. Henry Hub increased 19 cents Aug. 24 to $2.52/MMBtu, its highest since end-November.

**Houston Ship Channel cash price rose 22 cents to $2.555/MMBtu, its highest since end-November.

POWER

**ERCOT North Hub day-ahead on-peak package traded Aug. 24 in the mid $40s/MWh, relatively high considering that peakload demand for the region is expected to stay under 70 GW. The ERCOT North Hub balance of the week package is the one most impacted by the storms, trading higher than the day-ahead package at around $47/MWh.

**Tropical Storm Laura is expected to have a greater impact on the ERCOT region, and is most likely why ERCOT North Hub balance of the week prices are trading so high. If the hurricane shifts paths towards Texas, power prices can be expected to rise in the region over the upcoming week.

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TRADE FLOWS

OIL

**The incoming storms have caused cargo inquiry to fall off on the clean tanker market, as port restrictions were beginning to be put in place, and amid possible refinery closures. Freight for Medium Range tankers was indicated lower on most US Gulf Coast-loading routes Aug. 24.

**Dirty tanker activity has also eased as charterers look to potentially delay laycans on previously-booked fixtures. The smaller Aframax and Panamaxes remain rangebound and larger VLCC and Suezmax segments have seen little activity.

NATURAL GAS

**US LNG production remained steady Aug. 24. Total US flows stood at almost 5.1 Bcf/d on Aug. 24, an increase of over 100 MMcf/d from the day before and a slight decrease from Aug. 21.

**As of late morning Aug. 24, there were five LNG vessels in the Gulf of Mexico, with only one vessel, the Bonito LNG, heading toward the USGC, according to Platts trade-flow software cFlow.

**The other four vessels were making their way out of the Gulf after each loaded at one of the four USGC-based facilities.

POWER

**Marco and Laura's impacts on power loads could vary widely depending on where the storms strike.

**Each of the main independent system operators affected by Marco and Laura actually project increased peakloads the week of Aug. 24-28.

**The Electric Reliability Council of Texas' latest load forecast indicates peakloads would average more than 69.6 GW the work week of Aug. 24-28, up 5.8 GW, or 9.1%, from the comparable work week for the previous five years.

INFRASTRUCTURE

OIL

**Most majors and large public operators have announced shut-in oil and gas production ahead of the storms, including BP, Shell, Chevron, Norway's Equinor and Australia's BHP.

**Upstream operators had shut about 1.523 million b/d of oil, or 82.4% of offshore production, and 1.542 Bcf/d of natural gas, 56.9% of offshore production, according to the US Bureau of Safety and Environmental Enforcement on Aug. 24.

**Motiva was considering closing its 607,000 b/d Port Arthur, Texas refinery as of Aug. 24, although Motiva did not respond to a request for comment.

**Major area refiners, including ExxonMobil, Valero and Phillips 66, said they're preparing for the storms but that operations remain normal for now.

**The Houston Pilots halted inbound traffic on the Houston Ship Channel as a precaution Aug. 24.

**The Louisiana Offshore Oil Port has suspended operations at its Marine Terminal, although deliveries to its Clovelly Hub remain normal.

**New Orleans area ports were closed to traffic, according to the US Coast Guard.

**Houston area and Corpus Christi area ports remained open Aug. 24, but the USCG set port condition Whiskey, requiring vessel owners, operators and managers to review plans to depart or remain at port.

NATURAL GAS

**Cheniere Energy's Sabine Pass and Sempra Energy's Cameron LNG, both in southwest Louisiana, were expected to face the biggest impact, based on the latest forecast tracks for the storms. Based on flows, neither facility appeared to be taking any immediate steps to cut production or otherwise reduce operations.