IHS Markit Hurricane Harvey Update (September 7, 2017)

Crude Oil, Natural Gas, Refining and Chemical Sector Impacts

HOUSTON–(BUSINESS WIRE)–IHS
Markit (Nasdaq: INFO), a world leader in critical information,
analytics and solutions, is releasing periodic updates on the impact of
Tropical Storm Harvey on the crude oil, refining and chemical sectors.

A summary of the latest update follows below (As of end of day September
6, 2017).

The complete report is available at http://bit.ly/2eOfwjQ

Logistics

• The Gulf Coast is almost back to normal from a marine/port point of
  view.
• Corpus Christi is receiving ocean going tankers to feed its refineries
  and also ships that are loading there with crude exports.
• Freeport is open although there may still be some dredging work
  underway at that location.
• The Coast Guard announced last Friday the Galveston Bay entrance
  channel, outer bar channel, inner bar channel, bolivar roads
  anchorages, bolivar roads channel and Galveston harbor are open. The
  Texas City channel, Texas City turning basin and industrial canal are
  also open.
• The Houston ship channel is mainly open including all container
  loading and unloading facilities.
• The port of Houston is having staff challenges. A large number of Port
  employees were impacted by the flood. Those able to get to the port
  are working 12-hour days.
• The three Lake Charles refineries are now able to receive imported
  crude oil.
• Railroads appear to have made significant progress in restoring
  service.
• BNSF Railway reports service restored to most of its system but
  expects an extended outage due to major bridge repair on a main route
  between Houston and Corpus Christi.
• BNSF and Union Pacific advise that they hope to restore service soon
  between Houston and Beaumont, which will allow resumption of a more
  direct connection to the Baton Rouge/New Orleans area.
• As operating conditions have improved, railroads have lifted most
  embargoes for shipments to, from, or passing through the Gulf region.

Crude

• U.S. crude markets continue to show signs of normalizing, with
  production and midstream bottlenecks easing.
• International and domestic crude prices have risen over the past two
  days, partially reflecting the resumption of crude oil consumption
  along the U.S. Gulf Coast as refineries return to service.
• The daily U.S. government survey on Gulf of Mexico crude and natural
  gas production outages resulting from Harvey has been discontinued,
  indicating that offshore operations are quickly normalizing. As of the
  final report, only about 121,000 b/d of crude and 0.26 Bcf/d was still
  shut in.
• Onshore, Eagle Ford operations are quickly ramping back up according
  to industry sources. It is possible that Eagle Ford shale production
  growth rates could slow somewhat in the weeks ahead as the storm
  impacted some company drilling schedules.
• U.S. crude oil inventories could show large builds over the next
  couple of weeks, as domestic and imported crude deliveries have
  resumed while refinery crude consumption is still recovering.
  Offsetting this is a likely rebound in crude oil exports, now that
  Gulf ports are reopening.
• At around $5 per barrel, the Brent-WTI Cushing spread is at its widest
  level in two years. The spread is unlikely to widen further, now that
  U.S. refineries are returning to service and crude supply bottlenecks
  are easing.
• The next potential hurricane event that could impact crude markets is
  Hurricane Irma. In its immediate potential path are several Caribbean
  crude and product storage facilities. The biggest among them (albeit
  several days away at this point) is the Buckeye Bahamas Hub (formerly
  “Borco”) in Freeport, Grand Bahama Island. It has over 26 million
  barrels of crude and products storage capacity and is key location for
  blending, transshipping and terminalling operations that support crude
  oil trade between the Gulf Coast, East Coast and offshore markets like
  the Middle East, Europe and Africa.
• Gulf of Mexico crude and gas production could again be threatened,
  depending on Irma’s ultimate path. The Central Gulf contains the
  largest concentration of offshore oil and natural gas platforms.

Refining

• IHS Markit estimates that eight of the 20 refineries affected by
  Harvey are now operating at “normal” rates. And all but one of the
  other 12 are beginning restart procedures or actively ramping up
  production.
• Including the impact of refineries that are partially operational, IHS
  Markit estimates that around 2.9 million b/d of distillation capacity
  (16 percent of U.S. total) is offline as of September 6. This is down
  from around 4.8 million b/d (27 percent of U.S. total) just one week
  ago. This total is expected to decline steadily over the next several
  days, falling to 1.6 million b/d (9 percent of U.S. total) over the
  weekend.
• The faster-than-expected recovery by the refining industry has calmed
  product markets. Spot gasoline prices have declined for the past
  several days as fears of a broader supply crunch dissipate. However,
  the U.S. average retail gasoline price continues to trend upward as
  the impact of last week’s market upheaval works its way through the
  supply chain.
• Retail prices are also being pulled upward by Hurricane Irma,
  currently a Category 5 storm bearing down on Florida.
• The storm’s exact path is still unknown but at this point, it appears
  that Irma may move north along (or just offshore of) Florida’s
  Atlantic coast. This would still be greatly disruptive but far less so
  than if the storm moved laterally across the state.
• Irma staying to the east would allow Gulf Coast refineries to continue
  shipping product to Florida’s western coast, and would allow a quicker
  resumption of deliveries to the state’s heavily populated southeast.
  This is critical because Florida’s gasoline supplies are relatively
  low at the moment, having been disrupted for the better part of a week
  already by Hurricane Harvey.

U.S. Fuels Markets

• OPIS expects an average between $2.67-$2.70 gal when numbers are
  compiled for September 7 (overnight snapshot). September 6 number was
  $2.661 gal, up approximately 33cts gal from when Harvey first popped
  up as a hurricane threat.
• Spot prices and the wholesale prices generated from the bulk markets
  remain very sturdy. The most dramatically high market is NY Harbor
  where either conventional or reformulated blendstock fetches a price
  of $2.01 gal, or well in excess of $84 bbl.
• NYMEX October RBOB futures represent a point in time where most
  suppliers and customers believe inventories will stabilize. Hence,
  actual cash markets are trading at large premiums versus NYMEX – –
  34cts gal in NY; 13cts gal in Houston; 8cts gal in Group 3 (OK/KS
  cluster or refineries); 8.25cts gal in Chicago; 27.5cts gal in Los
  Angeles and 30-31cts gal in SF and the Pacific Northwest.
• Colonial Pipeline is now receiving contributions from refiners west of
  Lake Charles but shippers believe that there will be delays of about 7
  days in arrivals downstream.
• Wholesale gasoline supply thus remains tight from Georgia north to the
  Linden terminus, and may remain tight into the end of next week (c.
  September 15-17).
• Florida deserves special mention as it is quite typical for the
  peninsula to operate on less than 10 days’ supply, compared to
  national figures that have recently been at 23.7 days’ supply.
  Evacuation orders and preparation after a state of emergency was
  declared have led to widespread outages and stations without fuel on
  the East Coast, and OPIS sees such actions spreading to the West Coast
  as well.
• Complicating matters may be delays in cargo arrivals from Texas,
  Louisiana, Canada, Europe and Delaware River refiners. Once tropical
  storm winds are in the immediate forecast, ports will be closed to
  barge and tanker traffic.
• OPIS believes that current prices (generally at 24 month highs) will
  stay and possibly increase slightly into mid-month. Despite the
  ultimate demand destruction that comes with the end of the driving
  season and with the aftermath of any landfall by Irma, the prospects
  of a monthly consumer gas bill above $30-billion is likely. But
  consumers regularly paid in excess of $40-billion during the high
  priced post Arab spring months from 2011-2014, as well as in 2008 when
  WTI topped $145 bbl and nationwide gasoline prices breached $4 gal
  (briefly).

Natural Gas

• Deliveries into Cheniere’s Sabine Pass LNG export facility have fallen
  to below 200 Mmcfd from an average of approximately 1.9 Bcf/d prior to
  Hurricane Harvey.
• With a reported 6 vessels waiting just offshore, and 5 in line farther
  out at sea, exports are likely to ramp up quickly, with purchases from
  the U.S. pipeline grid closely following once any excess tank
  inventory is worked down.
• It took 8 days from receipts from the pipeline grid to decline to 0.5
  Bcf/d or below once ships stopped docking on August 24th, so a similar
  period of ramp-up for receipts is reasonable to expect.
• This demand rebound of more than 1.5 Bcf/d however occurs as natural
  gas use declines into the weak September/October shoulder season.
• Under normal weather conditions, U.S. natural gas end use would
  decline by approximately 5.9 Bcf/d from August to September as power
  generation declines, and before heating load ramps up. As such, market
  impacts are likely to be muted, with only limited basis impacts as
  receipts continue to focus on the Creole Trail and Transco pipelines,
  until the NGPL Louisiana Line returns to service.
• Hurricane Irma, if current path projections hold, unfortunately could
  also threaten the significant Florida natural gas market for a number
  of days. Florida natural gas demand for September under normal weather
  would be expected to average approximately 4.1 Bcf/d, or approximately
  6.6 percent of the U.S. total.

Natural Gas Liquids (NGLs)

• As of September 6, NGL operations effected by the storm at Mont
  Belvieu, Texas, the Permian Basin, and South Texas are returning to
  normal quickly.
• IHS Markit Point Logic Energy data shows that gas plant NGL production
  is back to pre-Hurricane Harvey levels as operations in Mont Belvieu
  and the Permian initially impacted return to normal service.
• NGL production from refineries has been slower to return than gas
  plant production. As of the evening of September 5, approximately 22
  percent of NGL refinery supply capacity was still offline, down from
  27 percent during the peak impact of the storm. IHS Markit expects
  this level to drop to 9 percent by September 10 as numerous refineries
  are in the process of resuming operations over the next several days.
• The majority of export capacity is back online with ships preparing to
  load cargos. IHS Markit expects some operational issues to occur as
  capacity is brought back online due to third party facilities outside
  of many NGL related logistics facilities facing continued operational
  issues.
• Last week ethane prices declined significantly on worries surrounding
  Gulf Coast cracker and export demand. As propane and butane prices
  both increased significantly due to supply concerns, ethane’s
  feedstock favorability increased substantially. As of the morning of
  September 6, ethane prices have returned back to their pre-Harvey
  levels but it continues to be the most favored feedstock.
• LPGs ratio to crude as well as the differential to Asia appears to
  have stopped their consistent daily upward trend over the past two
  days of trading as concerns over supply and export constraints subside.
• For updates specific to Asia, Europe and Latin America markets please
  see the full report.

Chemical

• Ethylene – While the percentage of total U.S. ethylene production
  offline currently sits at 54 percent and total U.S. ethylene
  consumption capacity to 36 percent, a number of units have begun
  restart operations. LyondellBasell/Equistar, Formosa, and ExxonMobil
  are a sample of companies that have indicated they have ethylene
  production units in restart mode. The Evangeline line, which connects
  Texas to the Louisiana, Choctaw ethylene distribution, is vital for
  transport of ethylene from Texas to Louisiana; thus far, the pipeline
  appears to be undamaged. Some units have already begun restart
  operations, however it may take weeks for the overall ethylene market
  to approach pre-Hurricane production levels.
• Propylene – The amount of confirmed propylene production assets
  offline has decreased slightly to 40 percent of the PGP/CGP.
  Refineries now coming online has lowered RGP supply offline to 21
  percent. Another 16 percent of PGP/CGP supply and 5 percent RGP supply
  is running at reduced rates. Derivative consumption of propylene has
  declined to 36 percent or relative parity to supply with another 17
  percent at reduced rates. Most derivative plants are reporting no
  significant damage but are limited either by supply of olefins or
  logistics constraints to move finished products.
• Polyethylene – While initial estimates reflected nearly 60 percent of
  U.S. PE production capacity had been lost or constrained due to
  mechanical or logistical issues that figure has now been reduced to 41
  percent. The improvement in the last week equates to approximately 3.2
  million tons of incremental capacity that is now available to run.
  Only a small percentage (single digit) of the capacity currently
  offline is expected to remain offline for more than 30 days.
• Polypropylene – Approximately 80 percent of North American production
  is back online, a remarkable recovery compared to only 40 percent as
  of the end of last week. This number is expected to increase to 85
  percent by early next week and possibly higher.
• Benzene – Most of the Houston area refineries are now going into the
  restart process with much of the market hopeful that operations will
  be able to return to normal operations by the end of next week. The
  Corpus Christi area refineries were already in restart over the last
  few days and could get back to normal operations by early next week.
  The major concern moving forward is for production in the Beaumont and
  Port Arthur area. The region lost power and water and that will make
  it more difficult to quickly restart but this region only has 6
  percent of U.S. benzene capacity.
• Chlor Alkali/Vinyls – The Chlor-alkali/Vinyls facilities in coastal
  Texas continue making progress towards the recovery from the hurricane
  and regional flooding. Formosa’s chlor-alkali plant in Point Comfort,
  Texas has restarted operations gradually, at low rates. VCM operations
  at Point Comfort have also resumed over the weekend and PVC operations
  are restarting, as well as the ethylene supply. OxyVinyls has made
  good progress too. Their PVC plants at Pasadena, Texas and Deer Park,
  Texas are running at reduced rates with available raw material
  inventory. Meanwhile, the VCM plants at Deer Park and LaPorte are
  progressing in their start-up plans.
• Methanol – The methanol units in the path of the storm are
  mechanically intact, but are in need of associated units such as CO2
  to start up before they can resume methanol and derivative production.
  None of the methanol units has been confirmed as restarted yet,
  leaving affected capacity at 2.7 million metric tons (46 percent of
  U.S. capacity).

The complete report is available at http://bit.ly/2eOfwjQ

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