Market Alert: 7 million b/d of Refining Capacity at Risk from Hurricane Laura

Read our Market Alert Update here

US Gulf Coast refiners find themselves directly in the path of Category 4 Hurricane Laura, which is due to make landfall late Wednesday night or early Thursday morning along the Texas and Louisiana border.

The US National Hurricane Center has issued a storm surge warning for the coastal area between Freeport, Texas, and New Orleans, Louisiana. During the peak of the storm, the surge could reach 20 feet for most of that area, especially from Houston to Morgan City. Significant flooding is expected.

6.8 million b/d of refining distillation capacity is in or near the storm surge/storm watch area. Of this, we assess that half is at high risk and is in the process of shutting down. The 3.4 million b/d of high risk capacity includes Texas City’s 0.8 million b/d of capacity, Port Arthur’s 1.7 million b/d, and Lake Charles’ 0.9 million b/d.

The other half of capacity at risk lies on the edge of the warning area and closures will be less certain, but may be affected by an inability to reach them as much as any immediate impact on the facility itself. These moderate risk areas include 1.7 million b/d in Houston/Baytown, 1.1 million b/d in St. James/Gramercy, and 0.6 million b/d in New Orleans.

The length of the closures will depend on the severity of flooding and other damage but will likely have an impact for weeks rather than days.

ESAI Energy’s preliminary expectations are that PADD III throughput could average 7.0 million b/d and 7.3 million b/d in August and September 2020, some 1 million b/d below July levels. Gasoline production, already low because of weak demand, could fall to 3.6 million b/d in PADD III for August and September, about 700,000 b/d below the same period in 2019. High product inventories and a weak demand outlook offer some cushion but the impact of the storm will certainly be bullish for product spreads going into the end of the third quarter.

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