Harvey gains momentum, could be bigger hurricane threatening one-third of US refining capacity – CNBC

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The energy industry is closely watching a developing storm that could become the first hurricane to make landfall in Texas in nine years and dump as much as two feet of rain on the heart of the U.S. refining industry.

A hurricane warning has been issued for a section of Texas’ Gulf Coast as Tropical Storm Harvey approaches. The warning, issued Thursday morning, covers an area from Port Mansfield to Matagorda.

If Harvey becomes a hurricane, as expected, it would be the first to come ashore in Texas since Hurricane Ike in 2008. So far a tropical storm, Harvey was heading towards the U.S. Gulf Coast from the Yucatan Peninsula and weather forecasters expect the National Hurricane Center to upgrade it to a possible Category 2.

Winds up to 75 mph (120 kmh) and 15 inches of rain (40 cm) were forecast in an early morning update from the National Weather Service.

By early Thursday, Harvey was about 370 miles (600 km) southeast of Port Mansfield, Texas, with maximum sustained winds of 45 mph, the U.S. National Hurricane Center said.

Nearly half of U.S. refining capacity is on the U.S. Gulf Coast from Alabama to Texas, and nearly one-third of U.S. capacity appears to be in Harvey’s path on the Texas and western Louisiana coastlines. Even if the storm does not become a major hurricane, it could be a considerable flooding event that would disrupt refining and possibly drilling operations.

“The main danger with this storm does not seem to be wind, it is the amount of rain and it looks set to stall over the Texas coast,” said Jacob Meisel, Bespoke Weather Services’ chief weather analyst. “This is something we’re watching even for onshore [drilling].”

Meisel said the storm is unpredictable, and the models are varied. “The amount of rain some of our weather models are printing out for this storm are totals that are almost unbelievable,” he said. “We’ve been seeing models that say 12 to 24 inches of rain is not out of the question for the Houston area over a few days if the storm stalls there.”

The oil industry was already making preparations, with Anadarko and others pulling workers from its Gulf of Mexico platforms, and refiners assessing their operations. Harvey looks set to cut across offshore drilling rigs, but it’s the refineries that are more at risk.

“This is much more impact on refining, especially if it becomes a flooding event,” said Andrew Lipow, president of Lipow Oil Associates. “They may be forced to reduce runs if they are not able to receive oil from vessels or export their surplus product.”

According to Lipow, 31.6 percent of U.S. refining capacity is located between Lake Charles, Louisiana, and Corpus Christi, Texas. He said if the storm becomes a Category 1 hurricane, a rule of thumb is that it could take about a week to restore refining operations, and as much as two weeks if it becomes a Category 2.

Oil prices were lower Thursday, but gasoline futures were higher, as some traders speculated the flooding could temporarily keep gasoline from Texas and Western Louisiana off the U.S. market because of transportation problems or shuttered refineries.

“It could still be disruptive. You can’t have this magnitude of potential shut-ins without seeing prices go up,” said John Kilduff, energy analyst with Again Capital. “This could be a hiccup. It will be temporary, but it could be a hell of a spike.”

Meisel also said there was a model showing rainfall of up to four feet so the danger is unpredictable intense areas of flooding.

“You’ll get really intense bands of rainfall that are really narrow. What you can get are pretty crazy totals of rainfall differences across a very small area. That’s where the main uncertainty lies right now,” said Meisel.

“We’re pretty convinced that the storm will make landfall in southern or coastal Texas,” he said. “We’re pretty sure it’s going to be a strong tropical storm or weak hurricane. The question is where do those bands show up.”

In the early morning Thursday, the forecast for Harvey intensified.

“NOAA expanded the forecast for the area where there would be 15 plus inches of rainfall now stretches from corpus Christi to Louisiana. had been mainly right around Houston,” said Meisel.

He said the hurricane is expected to make landfall later in the day Friday, but while the exact location is unclear there’s a good chance now that it will be southwest of Houston. “It could be closer to Corpus Christi but the main impact will be on the northeastern side. It looks like the most rain is going to be Houston,” said Meisel.

Meisel said as the storm approaches land there’s a chance it could slowdown, and it may not actually make land before Saturday morning. That would add to the rain risk.

“Over the next couple of days, it’s a giant circle over Texas and over the Gulf of Mexico. Most forecasts show it remaining on land,” he said.

But there are some outlier forecasts that show potential for a serious pattern. This is a low confidence forecast but something to watch.

“Even after initial landfall, some models are showing the storm re-emerging into the Gulf of Mexico and then making landfall again over western Louisiana,” he said, adding that would be the worst case scenario and would bring even more refineries into play.

Kilduff said there could be shut-ins due to power loss or just the inability for workers to reach refining areas, which line the coast.

Harvey’s potential path into Texas coast

Source: EIA/Bespoke

Brown dots—offshore/onshore oil wells

Blue dots—offshore/onshore natural gas wells

Flames—natural gas processing plants

Brown squares with barrels of oil—petroleum refineries

—Reuters and the Associated Press contributed to this report.

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