Hurricane Harvey is wreaking havoc on oil operations in the Gulf Coast, and even states far from the storm’s path are feeling its impact on the energy industry.
The hurricane has shuttered 22 percent of the nation’s refining capacity as Gulf refineries halt operations due to damage and flooding.
Petroleum industry groups and state officials in North Dakota — the country’s second biggest oil producer — say the hurricane isn’t yet having a measurable effect on the state’s robust oil fields.
Its impact is felt further down the line, when oil leaves the state.
Much of North Dakota’s oil travels to the Midwest on the pipelines, as does crude out of Colorado and Wyoming. Once in the Midwest, it’s either turned into products like gasoline, or it’s sent down to refineries in the Gulf — the very ones halting their operations due to the storm.
“You’ll see increased refinery demand in the Midwest as it makes up for the loss of gasoline supply in the U.S. Gulf Coast here in the short term,” said Nicole Leonard, a senior project consultant with Platts Analytics Oil & Gas Consulting.
She said it’s also possible western states could see more oil train traffic if companies choose to ship oil to West Coast refiners instead of to the Gulf.
“The upside to Bakken producers, and those in Colorado and Wyoming, is they still have access to rail infrastructure,” she said.
This would temporarily reverse a trend in these states in recent years. Transporting oil by rail had fallen way off as companies built new pipelines to get oil to market.
A lot depends on how much damage refineries sustained in the storm, whether pipelines in the region stay shut down, and how quickly ports in the Gulf can open back up to export crude stored there.
“Without the ability to do so, we have inventories growing,” Leonard said. “The value of crude is lower because it’s stuck.”
If the price of crude continues to drop due to these disruptions, she said it would affect producers in oil-rich states. U.S. oil is currently worth $47 per barrel. If it drops below $40, producers may not be able to make a profit, and drilling new wells would likely taper off, she said.
While all this plays out, drivers are noticing a spike in gasoline prices.
“There’s plenty of gasoline out there in storage and ready to serve the needs,” said Gene LaDoucer, a spokesperson with AAA in North Dakota. “It’s just virtually impossible at this time to get the gasoline that’s available to the markets where it’s needed because of flooded roads and pipelines that are down and power outages.”
As a result, the average gasoline price in the nation is the highest it’s been all year at $2.45 per gallon. LaDoucer says the jump in price is greatest in eastern and southern states that get gasoline from the Gulf where refineries and pipelines are shut down.
Western states get their gasoline from other parts of the country, but they’re still feeling an impact. In North Dakota, LaDoucer says a gallon of gasoline has jumped 10 to 15 cents since Tuesday.
He predicts it may rise another 10 cents in the coming days, just in time for Labor Day weekend when many people are traveling.
“Unfortunately with the price spikes we’re seeing, it could encourage some people to say home,” he said. “Once you see prices go up 10, 15, 20 cents or more, it may start to impact household budgets a little bit.”
But the impact won’t last too much longer, he said. He expects prices to return to normal by mid-September.
By then, analysts say some of the Gulf refineries should be back online and ports opened up, helping provide certainty to an industry where so much can be rattled by a force of nature.
What’s Next?
- Nature has a habit of causing problems for the oil industry. Check out our stories about lightning strikes at saltwater disposal sites and wildfires in the oil patch.
- In North Dakota, officials want a new estimate showing how much oil is available for the industry to extract. Learn why here.
- What story should Inside Energy investigate next? You should weigh in!
