Forecast Sturdy Hurricane Season Presents Threat for U.S. Oil & Pure Gasoline Business

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Meteorologists are forecasting a very intense Atlantic hurricane season this yr; they anticipate 20–25 named storms with a risk of 30 or extra, in accordance with studies from AccuWeather in April. Colorado State College equally forecasts an estimated 23 named storms this yr. The potential for a stronger hurricane season suggests heightened danger for weather-related manufacturing outages within the U.S. oil and pure fuel trade.

The 2023 Atlantic hurricane season had 20 named storms, however just one hurricane made landfall in the USA. None of final yr’s storms had a big impression on U.S. petroleum infrastructure. Extra data on vitality infrastructure and potential storm dangers is out there utilizing our Power Atlas.

What’s hurricane season?

The Nationwide Oceanic and Atmospheric Administration’s (NOAA) Nationwide Hurricane Middle defines the Atlantic hurricane season as working from June 1 by November 30. Typically, June is the month when the earliest named storms start forming within the Atlantic Basin, and probably the most extreme hurricanes often type in August and early September. In the USA, hurricanes most frequently hit the Southeast (PADD 1C) and the U.S. Gulf Coast (PADD 3).

How do hurricanes have an effect on petroleum markets?

Hurricanes primarily have an effect on petroleum markets by disrupting crude oil manufacturing and refinery operations. Offshore crude oil in the USA is concentrated within the Federal Offshore Gulf of Mexico (GOM) and might be considerably restricted by inclement climate. Offshore oil and pure fuel floating manufacturing models should take care of a number of the most extreme hazards related to hurricanes and tropical storms; they will need to have emergency procedures to evacuate nonessential personnel and briefly halt manufacturing. In 2023, GOM crude oil manufacturing accounted for 14% of U.S. crude oil manufacturing.

Refining of crude oil can also be affected by hurricanes in sure elements of the Gulf Coast. Refineries alongside the Texas and Louisiana Gulf Coast account for nearly half of U.S. refining capability. These amenities danger flooding or energy outages related to main storms or hurricanes. Like offshore floating manufacturing amenities, many refinery operators will evacuate nonessential personnel and briefly cease manufacturing in the event that they consider extreme climate may injure staff or injury their amenities.

Do hurricanes have an effect on pure fuel markets?

A hurricane may additionally cut back pure fuel manufacturing within the GOM, which is usually related fuel manufacturing; nevertheless, current hurricanes have had a a lot smaller impression on complete U.S. pure fuel provide as a result of pure fuel manufacturing within the GOM has been declining for years. The GOM supplied lower than 2% of complete U.S. marketed pure fuel manufacturing in 2023, down from 17% in 2005 when Hurricanes Katrina and Rita interrupted vital volumes of pure fuel manufacturing.

Hurricanes can have an effect on U.S. pure fuel demand by interrupting liquefied pure fuel (LNG) export operations. The USA has practically 13 billion cubic toes per day of LNG export capability positioned on the Gulf Coast, making it weak to weather-related disruptions equivalent to hurricanes. Though LNG amenities typically have many layers of safety from direct impression, hurricanes can injury electrical and marine infrastructure and hamper ship motion. For instance, the results of Hurricane Laura, which made landfall in August 2020, briefly halted LNG exports from Louisiana’s Sabine Move and Cameron LNG amenities.

What determines the size of a weather-related impression on markets?

A storm’s location is the principle figuring out issue of the severity of its impression on petroleum and pure fuel markets, adopted by the storm’s depth. An intense storm that impacts a area with out manufacturing or refining capability is unlikely to have an effect on total U.S. provides.

Hurricanes can have an effect on native consumption, nevertheless. In situations the place areas face an impending main hurricane or different emergency, modifications in client conduct can result in temporary regionalized spikes in gasoline demand, which may have an effect on costs due to native provide shortfalls or panic-buying.

Hurricanes can even disrupt provide chains for petroleum merchandise. Though petroleum fuels are usually not refined in Florida, the state has vital gasoline demand. Gas provides in Florida are primarily shipped on barges from Gulf Coast refineries, equivalent to these in Texas and Louisiana. Hurricanes and tropical storms can result in temporary disruptions in these barge transfers, resulting in related shortfalls in native provide.

How a lot refinery capability is in danger from hurricanes?

The Texas Gulf Coast refining area has clusters of refinery capability in Corpus Christi, Port Arthur, and the Houston-Galveston area. The refining area has 5.5 million barrels per day (b/d) of refinery capability and has the biggest refineries in the USA, together with Motiva’s 626,000-b/d Port Arthur refinery, Marathon’s 593,000-b/d Galveston Bay refinery, and ExxonMobil’s 610,000-b/d Beaumont and 564,000-b/d Baytown refineries.

Refineries on the Louisiana Gulf Coast account for a further 3.3 million b/d of capability, together with Marathon’s 596,000-b/d Garyville refinery northeast of New Orleans and ExxonMobil’s 523,000-b/d Baton Rouge refinery.

The 2 refining areas mixed account for 48% of complete U.S. refinery capability. The trail of a single hurricane or main storm is unlikely to have an effect on greater than a single cluster of refineries. Nevertheless, due to the whole quantity of refining capability in both area, greater than 1.0 million b/d of capability might be briefly taken offline in anticipation of a significant storm.

Refineries that maintain main injury or flooding due to a storm could also be taken offline for longer durations. Main storm injury prices lots to restore. Within the extreme instances, this injury might result in a refinery completely closing. In 2021, Phillips 66’s Alliance refinery in Belle Chase, Louisiana, closed following vital storm injury.

Hurricanes don’t usually hinder refining operations within the mid-Atlantic (PADD 1B) area, though the biggest refinery on the East Coast—the 259,000-b/d Bayway refinery in New Jersey operated by Phillips 66—was affected by Hurricane Sandy in 2012. Comparable incidents at Bayway or storms that restrict imports into New York Harbor additionally current a possible danger to U.S. petroleum provides.

Does EIA forecast hurricane impacts on oil within the Brief-Time period Power Outlook?

In our Brief-Time period Power Outlook, we assume a share of GOM crude oil manufacturing will probably be offline throughout every month of the hurricane season, based mostly on the typical share of offline month-to-month manufacturing in the course of the earlier 10 hurricane seasons (2014–23).

We don’t forecast lowered refinery exercise explicitly attributed to the hurricane season. Nevertheless, seasonal impacts of downturns associated to hurricanes are partially captured in month-to-month seasonality variables.

Principal contributors: Kevin Hack, Corrina Ricker

Article from As we speak in Power.