Factbox: US Gulf Coast energy industry braces for Hurricane Laura

New York — The US Gulf Coast energy industry was preparing Aug. 25 as the second of two storms this week was approaching the Texas/Louisiana coast.

Several Texas and Louisiana refiners, totaling roughly 2.23 million b/d of capacity, said they were in the process of closing plants or reducing runs ahead of Hurricane Laura, which is expected to make landfall early Aug. 27.

Offshore producers had already begun shutting in output ahead of Tropical Storm Marco, which weakened considerably when it made landfall in Louisiana. By Aug. 25, upstream operators had shut about 1.558 million b/d of oil, or 84.3% of offshore production, and 1.652 Bcf/d of natural gas, 60.94% of offshore production, according to the US Bureau of Safety and Environmental Enforcement.

"The 2020 Atlantic hurricane season, which has already produced 11 storms including 3 hurricanes, is forecast to result in 20 storms (9 hurricanes and 4 major ones)," according to S&P Global Platts Analytics. "Year-to-date, approximately 67,000 b/d (annual average) of oil production has been disrupted (mainly from Hurricane Cristobal) with the potential to significantly increase since the peak (normally in mid-September) is yet to come."

While refined products and crude prices have risen on the shut-ins, the rallies have been capped by low demand and supply surpluses caused by the coronavirus pandemic.

US crude inventories at 512.45 million barrels the week ended Aug. 14 were 15% above the five-year average, US Energy Information Administration data shows.

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PRICES

OIL

**NYMEX refined products prices continued to rally as the storms posed a threat to refinery operations on the US Gulf Coast.

**NYMEX September RBOB settled at $1.3959/gal Aug. 25, up 11.18 cents over the past two trading days. NYMEX September ULSD settled at $1.2601/gal, up 5.21 cents.

**The rise in the New York-delivered RBOB price caused a sharp pull for available products out of Europe. As a result, the UK Continent to US Atlantic Coast clean freight rate was assessed by S&P Global Platts almost $8 higher at $23.61/mt Aug. 25 (Worldscale 150, up w50).

**NYMEX October crude settled at $43.35/b, up just $1.01 over the past two trading days.

**The production outages initially boosted spot crude differentials for offshore grades, but those gains were diminished Aug. 25 by lower demand from the refinery outages. Heavy Louisiana Sweet was assessed by S&P Global Platts at a $2.60/b premium to cash WTI, down 15 cents on the day, but up $1.45 from Aug. 22.

**S&P Global Platts assessed Americas GulfCoast Select (AGS) at a 47 cents/b premium to WTI, little changed over the past two trading days as the assessment reflects forward loading barrels. US Gulf Coast crude for export on an FOB basis is mostly trading cargoes loading in September and October.

**In USGC spot distillates, jet fuel was assessed by S&P Global Platts at the NYMEX October ULSD contract minus 10 cents/gal Aug. 25, the strongest since Feb. 27, on the reduction in refinery runs. Spot ULSD was assessed at NYMEX ULSD minus 5.40 cents/gal, up 75 points on the day and the strongest since Aug. 18.

NATURAL GAS

**Natural gas prices rallied ahead of the storms as production was shut in. Henry Hub cash prices slipped 50 points to $2.515/MMBtu Aug. 25 after rallying 19 cents on Aug. 24, levels not seen since the end of November.

**Houston Ship Channel cash prices fell 3.5 cents on Aug. 25 to $2.52/MMBtu, after surging 22 cents higher on Aug. 24, also a level not seen since end-November.

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TRADE FLOWS

OIL

**Freight rates for US Gulf Coast VLCC and Suezmax ships were stable on the day as port closures and restrictions were met with ample ship availability and a lack of charterer interest.

**The rise in US gasoline prices caused a sharp pull for available products out of Europe to the US, driving up an already tight freight market. The UK Continent to US Atlantic Coast clean freight rate was almost $8 higher at $23.61/mt Aug. 25 (Worldscale 150, up w50).

NATURAL GAS

**US LNG production fell 1 Bcf/d Aug. 25 and was expected to drop further after Cheniere suspended operations at Sabine Pass in Louisiana and Sempra evacuated non-essential staff from nearby Cameron LNG and said it planned to operate at a reduced rate. Total US flows stood at approximately 4.1 Bcf/d on Aug. 25.

**Pilot service was suspended to inbound vessels through the channel serving Sabine Pass and to all traffic through the channel serving Cameron LNG, according to advisories that shipping services issued to customers.

**No LNG tankers were loading at either facility, and no tankers appeared to be heading into the area by early afternoon, Platts vessel-tracking software cFlow showed Aug. 25. Sabine Pass has a capacity of 25.6 million mt/year, while Cameron LNG has a capacity of 15 million mt/year.

INFRASTRUCTURE

OIL

**The following Texas and Louisiana refiners, totaling roughly 2.23 million b/d of capacity, said they were in the process of closing plants or reducing runs ahead of Hurricane Laura: Motiva, Port Arthur (630,000 b/d); ExxonMobil, Beaumont (366,000 b/d); Total, Port Arthur (225,500 b/d); Phillips 66, Lake Charles (249,000 b/d); Valero, Port Arthur (335,000 b/d); and Citgo, Lake Charles (425,000 b/d).

**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, according to Platts Analytics. Of that, 9.6 million b/d is in Texas, Louisiana and Mississippi.

**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.

**By Aug. 25, upstream operators had shut about 1.558 million b/d of oil, or 84.3% of offshore production, and 1.652 Bcf/d of natural gas, 60.94% of offshore production, according to the US Bureau of Safety and Environmental Enforcement.

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

**Most New Orleans area ports were re-opened to traffic Aug. 25, according to the US Coast Guard, but with restrictions in place. The Lower Mississippi River remained closed from Mile Marker (MM) 20 Below Head of Passes to MM 20 Above Head of Passes.

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

**Houston area and Corpus Christi area ports remained open Aug. 25, but the USCG set port condition X-Ray on Houston, Galveston, Freeport and Texas City ports, requiring vessel owners, operators and managers to review plans to depart or remain at port.