Gasoline prices are expected to remain low in the Houston area and across the country as the nation’s largest refineries seem to have survived Hurricane Laura relatively unscathed.
Energy companies are starting to assess the extent of damage to refineries that transform crude oil into petroleum products such as gasoline, diesel and jet fuel. Preliminary reports indicate that the Category 4 hurricane spared the nation’s largest refineries in Beaumont and Port Arthur, which process about 1.7 million barrels of crude a day, from the worst of the devastation.
“It seems like that area largely dodged a bullet and could see a relatively quick restart,” said Denton Cinquegrana, chief oil analyst with Oil Price Information Service. “We might see some capacity offline next week, but it won’t be nearly as bad as (Hurricane) Harvey.”
Hurricanes pose a major threat to the nation’s refineries concentrated along the Gulf of Mexico. More than 45 percent of the nation’s refinery capacity is along the Gulf Coast. The refineries between Beaumont and Lake Charles, La., process about 2.6 million barrels of crude a day, according to OPIS.
Refineries are built to withstand hurricane-force winds, but they can suffer major damage from storm surges and excessive rainfall that can flood equipment. Saltwater, in particular, can wreak havoc on electrical connections and corrode metal equipment if it remains flooded for lengthy periods.
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“Storm surge is the biggest concern,” said Susan Grissom, chief industry analyst for the American Fuel and Petrochemical Manufacturers, a refinery trade group. “Refineries aren’t meant to be underwater.”
In 2017, Harvey knocked out nearly a quarter of U.S. refinery capacity and forced the nation’s largest refinery — Motiva Enterprises in Port Arthur — to shut down for weeks. There were reports of gasoline shortages across Texas as panicked consumers topped off tanks. Average gas prices nationally quickly soared above $2.50 a gallon, up more than 17 cents in a matter of weeks.
After Laura, however, gas prices are expected to remain stable, as refineries took action early to halt production and prepare for the storm. As a result, operations are expected to resume within days instead of weeks.
The average price of a gallon of gas in the Houston area Thursday was $1.86, up 2 cents from a week ago. The statewide average was $1.92, up 5 cents from a week ago, according to AAA Texas.
Four of the largest refineries — Motiva, Valero and Total in Port Arthur and Exxon Mobil in Beaumont — were not in Laura’s direct path. These refineries process about 1.7 million barrels of crude a day, according to OPIS.
Three refineries in Lake Charles — Citgo, Phillips 66 and Calcasieu, which process a total of 800,000 barrels of crude a day — took a direct hit from Laura. Citgo and Phillips 66 on Thursday said they are starting to assess storm damage. Calcasieu did not respond to a request for comment.
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“There may be some localized gas shortages in Lake Charles and the surrounding areas where Laura went through, but in the grand scheme of things, this is not going to be a major catastrophe for the gasoline markets,” Cinquegrana said. “I don’t see any shortage.”
Even if refiners could not restart operations as quickly as expected, a glut of crude oil from the global coronavirus pandemic will keep prices low. Gasoline supplies are about 11 million barrels over the five-year historical average, and at the current demand rate, the U.S. has a 27-day supply of gasoline, up from 24 days a year ago, according to OPIS.
Although gasoline demand has been recovering since May, sales remain about 18 percent below pre-pandemic levels as many workers continue to work from home and as the busy summer driving season is ending.
“With decreased demand, we don’t see any constraints,” said Sherri Stone, vice president of the Petroleum Marketers Association of America, which represents gasoline wholesalers and retailers. “There’s plenty of crude in the market.”
Reporter Erin Douglas contributed.
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