When Storms Strike, Crude Oil And Natural Gas Facilities On The Gulf Coast Face Different Risks

A large supply of crude oil from other areas means that a slowdown in refining on the Gulf Coast after Harvey didn’t cause prices to rise.

By Alexandra HartJune 4, 2018 6:56 pm| ,

Hurricane season is officially underway, and with major refineries dotting the Gulf Coast shoreline, the energy industry is particularly vulnerable to damage from a major storm like last year’s Harvey. Hurricane season runs from June 1 through the end of October, so energy producers face a long period of risk. But not all risks are created equal.

Matt Smith, director of commodity research for ClipperData, says that storm activity is likely to begin during the second half of August – around Hurricane Harvey’s one-year anniversary. He says the storm surges will affect facilities that process oil and gasoline very differently.

Because of the shale oil boom in west Texas and elsewhere, Smith says, prices for oil are lower, disincentivizing drillers from looking for more in the Gulf. Less than 5 percent of natural gas production in the U.S. is currently coming from the Gulf. It’s less than 20 percent for crude oil.

“We saw oil prices drop because the refineries were knocked out and that limited demand for crude,” Smith says about production after Hurricane Harvey.

However, the natural gas industry had the opposite problem during last year’s storm eason.

“It’s an inverse relationship,” Smith says. “It’s sort of a see-saw situation where you saw oil prices drop and gasoline prices spike because there was less production coming through.”

Due to an increase in violent storms, meteorologists are considering the possibility of a Category 6 hurricane. But Smith says that’s just hypothetical.

“Since 1980, the number of storms with winds over 157 mph – a Category 5 hurricane – has tripled,” Smith says. “It’s just being bantered around as we are getting these super storms that we haven’t had 20 or 30 years ago.”

Written by Haley Butler.