Deborah Byers

Hurricane Harvey caused significant damage to Gulf Coast refineries, shutting down approximately 4 million barrels of refining capacity and causing retail gasoline prices to jump – albeit temporarily – amid fears of shortages.

Two weeks after the storm, five refineries in Texas remained closed, and another 10 were only partially operational – accounting for about 13 percent of the country’s refining capacity.

Each time a hurricane impacts energy infrastructure on the Gulf Coast, the same question is raised: Shouldn’t the industry seek to geographically separate vital refining and petrochemical facilities to reduce the risks of major shutdowns due to natural disasters?

Of course, Texas, Louisiana and Alabama offer a number of strategic advantages for refiners – access to abundant supply, capable workforces, favorable political and economic climates, and a social acceptance of the energy industry. Currently, about 40 percent of the US refining capacity is located along the Gulf Coast.

Changing that percentage in any meaningful way has become improbable over the past few decades. Environmental challenges and the not-in-my-backyard phenomenon effectively make some regions of the country off-limits for new refinery construction.

In the nearly three decades since 1990, eight refineries have been built in the US. Four of those are located in Texas; there are one each in Nevada, Alaska, Alabama and North Dakota. Notably, three of those four were built with less than 10,000 barrel-a-day capacity.

Not surprisingly, it’s been nearly 40 years since a new refinery was built in California, the state which by far has the most automobiles in the US along with very exacting gasoline standards. Of course, it also has the toughest environmental regulations in the nation, making new refining infrastructure close to impossible.

In total, the number of refineries in the US has declined in recent years. But expansions of existing facilities and increased efficiencies have enabled the industry to keep pace with demand.

Still, the threat of supply disruptions due to natural disasters makes the nation vulnerable.

For example, Hurricane Katrina in 2005 badly damaged offshore production, and gasoline prices spiked by as much as 40 cents per gallon in some markets as refiners still in operation struggled to get crude. In response, the US released 30 million gallons of oil from the Strategic Petroleum Reserve to help bring supply in line with capacity.

But in today’s era of energy abundance, much of our supply comes from onshore production in fields such as the Permian Basin, far removed from potential damage from hurricanes. Our “weak link” is no longer production. Instead, its ensuring these abundant supplies can make it to the end market no matter the circumstances.

For example, Florida, which has no in-state refinery and no direct gasoline pipeline access, experienced significant disruptions in its supply chain immediately after Hurricane Irma.

Florida relies heavily on marine shipments of gasoline, and port closures due to the storm – along with increased demand due to mass evacuations – had a major impact on supply. Gasoline prices jumped by about 40 cents per gallon between Aug. 28 and Sept. 4, and it may be several weeks before supplies are replenished.

The risk of supply disruption isn’t just local; southern states and large markets on the East Coast, for example, rely heavily on gasoline, heating oil and jet fuel shipments from Houston-area refineries via the 5,500-mile Colonial Pipeline system – the largest refined products pipeline in the country, with a capacity of 3 million barrels. When Houston-area refineries shut down, or the pipeline itself suffers damage to its facilities, as happened with Hurricane Harvey, shipments to roughly half the country are impacted.

And while the adoption of electric vehicles may make refining capacity less of an issue, hurricanes also lead to the widespread loss of power, which creates an entirely different post-storm vulnerability.

Given the outcomes of Harvey and Irma, is it time for the US to pursue a Strategic Petroleum Reserve-style approach to refining? Perhaps easing regulations to make it possible to build and operate major refineries in other regions?

Deborah Byers

Houston, Texas, United States 5K followers 500+ connections

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DTE Energy

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Baylor University

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