This article is part one of a two-part feature looking at the potential for the 2019 Atlantic Basin hurricane season to disrupt the U.S. energy industry. Part two can be found here.
Hurricane researchers are predicting an average hurricane season in 2019, but as the Gulf Coast's role in oil and gas production evolves, even relatively weak storms pose an increased risk to U.S. energy infrastructure.
The U.S. National Oceanic and Atmospheric Administration predicted on May 23 a 40% chance of a near-normal season — which runs from June 1 through Nov. 30 — during which there would be between nine and 15 named storms with winds of 39 mph or higher, with between two and four becoming major hurricanes with winds of 111 mph or greater.
Three days earlier, the U.S. National Hurricane Center said the first named storm of the season, subtropical storm Andrea, developed several hundred miles southwest of Bermuda, marking a record fifth consecutive year a named storm developed prior to the June 1 start of the hurricane season.
In April, atmospheric scientists at Colorado State University's tropical meteorology project determined there is a 28% chance a major hurricane will make landfall along the U.S. Gulf Coast that stretches from the Florida panhandle westward to Brownsville, Texas, during the 2019 hurricane season.
Gulf Coast's role in global energy trade evolving as US exports swell
Amid onshore energy production growth, the U.S. Gulf Coast continues to play a critical but evolving role in the global energy trade.
Over half of U.S. crude oil and petroleum imports used to flow through Gulf Coast ports, while oil rigs in the federal waters offshore used to account for more than a quarter of U.S. oil production.
Onshore oil production growth has provided the U.S. refining industry with a cheap source of crude oil, allowing the industry to better compete with global competitors and grow exports.
Today, the Gulf Coast accounts for most of U.S. crude oil and petroleum exports. In February, 168.5 million barrels of exports at Gulf Coast terminals exceeded 62.6 million barrels of imports by more than two and a half times.
Harvey's impact: Construction delays and logistical adjustments
On Aug. 26, 2017, Hurricane Harvey made landfall on San Jose Island, Texas, northeast of Corpus Christi as a Category 4 hurricane. Before heading offshore and subsequently making landfall as a tropical storm in Louisiana, the center of the storm lingered over the Texas Gulf Coast for two days, inundating parts of the Houston metropolitan area with at least 30 inches of rain.
Floodwaters from Tropical Storm Harvey flow in the Buffalo Bayou in downtown Houston on Aug. 28, 2017.
Source: Associated Press
Strong currents after Hurricane Harvey hit land kept tankers from docking at Cheniere Energy Inc.’s Sabine Pass LNG export terminal in Louisiana for nearly two weeks, and natural gas flows to the facility plummeted as a result of the storm. While Harvey did not directly touch every company, the oil and gas industry felt its impact.
The hurricane and the resulting flooding was partly blamed for construction delays at the Freeport LNG terminal in Texas.
Construction also shut down temporarily on the Sempra Energy-led Cameron LNG terminal in Louisiana and Cheniere’s second terminal in Corpus Christi, Texas, but none of the developers reported significant damage.
The amount of U.S. LNG capacity concentrated in the Gulf has increased in the nearly two years since Hurricane Harvey, and so has the potential for disruptions to American LNG exports as a result of extreme weather. Risks range from construction delays to curtailed or shut-in production.
For refiners, the storms also pose an immediate logistical challenge.
"You cannot run a refinery if you can't move the barrels that you produce out. You get into containment issues very quickly," Valero Energy Corp. Chairman, President and CEO Joe Gorder said following the storm, later adding that Hurricane Harvey "touched almost all of Valero's Gulf Coast refineries."
The storm and its aftermath disrupted the crude oil and petroleum supply chain for weeks, bringing U.S. crude oil and petroleum exports to their lowest level since 2011 and reducing crude oil inputs at Gulf Coast refineries by 38.4% from levels immediately prior to the storm.
Phillips 66 Chairman and CEO Greg Garland attributed a third of the company's 2017 increase in operating costs to "turnaround maintenance and hurricane-related costs." While Valero executives said costs from repairs to address hurricane damage lingered into the 2017 fourth quarter, they said sustaining capital expenditures came in $300 million below budget "primarily due to lower turnaround costs and hurricane-related delays on certain projects."
Even companies that escaped storm damage had to execute contingency plans because of the storm.
"Our system did not experience material flooding or damage, but we did operate at a reduced rate at our Galveston Bay refinery for a few days to enable pipelines, marine vessels and other logistics assets to resume normal operation," Marathon Petroleum Corp. chairman and CEO Gary Heminger said Oct. 26, 2017. "To help supply the market's needs, we temporarily delayed turnaround activity at our Catlettsburg, Garyville and Robinson refineries."
"Shortly after Harvey, we were preparing for the landfall of Hurricane Irma," Heminger said. "In preparation for the evacuation of Florida's residents, our logistics team focused on transporting as much fuel as possible to Speedway- and Marathon-brand locations along the evacuation route utilizing our trucks, barges as well as additional third-party assets."
Despite the disruption, executives said the experience points to the resilience of energy infrastructure along the Gulf Coast.
"To think that the epicenter of the refining industry on the Gulf Coast could take a direct hit from a Category 4 hurricane, and keep supply disruptions as short-lived as they were, was impressive," Gorder said.
Are Atlantic Basin storms becoming more intense?
Hurricane Harvey was not the only recent storm to cause catastrophic flooding from rainfall, and questions linger as to whether the event is part of a trend driven by climate change.
2016's Hurricane Matthew was a Category 1 storm when it grazed the North Carolina coast, causing at least $1.5 billion in property damage to 100,000 structures in the state. 2018's Hurricane Florence was the eighth-wettest tropical cyclone to hit the contiguous U.S., dropping 35.93 inches of rain near Elizabethtown, N.C., and leaving $24 billion in damage in its wake.
"We have had some extraordinarily intense rainfall events from tropical cyclones in recent years," Phil Klotzbach, a hurricane expert at Colorado State University's department of atmospheric science, said May 20. "I am not aware of any published paper that has conclusively demonstrated that hurricanes are producing more rainfall as of yet, but from climate change arguments, it is likely that storms will produce more rainfall in the future, simply because a warmer atmosphere can hold more water vapor."
Klotzbach pointed to a February 2010 paper published in the peer-reviewed journal Nature Geoscience.
"Whether the characteristics of tropical cyclones have changed or will change in a warming climate — and if so, how — has been the subject of considerable investigation, often with conflicting results," the paper said, noting "substantial limitations in the availability and quality" of historical data.
Climate change "will cause the globally averaged intensity of tropical cyclones to shift towards stronger storms" but "existing modelling studies also consistently project decreases in the globally averaged frequency of tropical cyclones."
"Balanced against this, … studies typically project substantial increases in the frequency of the most intense cyclones, and increases of the order of 20% in the precipitation rate within 100 km of the storm centre," the article said.