Energy Issues
What an interesting month we have had, here in the States. Hurricane Harvey roared ashore along the Texas Coast, the first Category 4 hurricane to make landfall in the U.S. since Hurricane Charley plowed through the Gulf in 2004. Expectations for devastation were high. In flooded Houston, South Texas, and surrounds, the expectations were spot-on. But offshore, it could have been much worse.
Pre-storm preparations. As the storm approached, offshore operators began to adjust operations to prepare for the storm, as did onshore operators close to the coast. Among those preparations:
- On Aug. 23, Shell shut in production on its Perdido and Enchilada Salsa platforms, and evacuated Perdido personnel to shore.
- On Aug. 23, Anadarko shut in production and evacuated workers from its Boomvang, Gunnicon, Lucius and Nansen platforms, followed by similar shutdowns of its Constitution, Heidelberg and Holstein platforms on Aug. 25.
- On Aug. 23, ExxonMobil began reducing production on its Hoover platform, followed by an Aug. 24 shut-in and personnel evacuation at their Galveston 209 platform.
- On Aug. 24, Williams Company had evacuated all offshore personnel.
All told, workers were evacuated from 112 oil and gas platforms in the Gulf of Mexico, out of 737 manned platforms.
Similar activity took place onshore:
- Statoil began evacuation of its Eagle Ford shale operations on Aug. 24, although wells were not shut in at that time. Marathon, ConocoPhillips, Pioneer Natural Gas, EOG, BHP Billiton, Noble Energy and ExxonMobil made similar preparations in the Eagle Ford.
Onshore assets also witnessed the closure of refineries, from Corpus Christi up the coast to Houston, Beaumont and Port Arthur. Natural gas processing plants in the same areas were shut down.
The aftermath. Nearly 25% of oil production and 26% of natural gas output in the Gulf of Mexico was shut in, in anticipation of Harvey’s destructive potential, as well as a substantial portion of refining and gas processing along the coast. Preparations were more than adequate. At the end of the day, damage to offshore and onshore infrastructure was minimal, as was damage to onshore production and distribution facilities.
Due to minimal damage, recovery has moved swiftly. Within three weeks of Harvey’s landfall, 15 of the 20 refineries that shut or slowed production were almost fully recovered, with about 1.0 MMbopd of refining capacity still offline, according to IHS Markit. Some of the recovery of refining output, and the additional rise in gasoline prices, was due to demand for fuel in Florida as a second storm, Hurricane Irma, approached. Meanwhile, U.S. oil production recovered rapidly in the Eagle Ford shale onshore Texas and in the Gulf of Mexico following Harvey. Daily output rose from 8.8 MMbbl to 9.4 MMbbl, just three weeks afterward, according to the U.S. Energy Department.
Industry stability. The quick recovery of the U.S. oil and gas industry following Harvey may be seen as a robust confirmation of the sector’s stability and strength. Others, most notably, David Blackmon, a Forbes and World Oil contributor, estimate that the industry “is in for a good deal more than stability—some would call it stagnation—for the year’s final 100 days.” Blackmon bases his estimation on the budgeting process within the industry. That process, combined with, and driven by, stable oil prices, dictates the stagnation by making operators reluctant to revise budgets. “Indeed, these corporate processes aren't merely responding to the relative market stability; they are also helping to create it,” says Blackmon, feeding the stagnation.
“These factors, combined with America's rapidly expanding capacity for export of both crude oil and liquefied natural gas,” notes Blackmon “all point to the likelihood of continued stability for the remainder of 2017, with some prospects for some level of growth during 2018. After the previous three years of wild instability and upheaval, few in the U.S. oil and gas industry would turn up their noses at such a boring forecast.”
But, if Harvey could not dislodge the stability of the U.S. oil and gas industry, might Donald Trump, an incomparable, blustery and disruptive force have a better chance? That would be the same Donald Trump that likes the oil and gas industry. In fact, he likes all of the energy industries, including coal, and he is willing to work for them. He is a large proponent of bringing back coal as a major fuel source, a move that could harm oil and gas, if coal were to be re-adopted as a major fuel source. It won’t. There is stability in that. It also would be the same Trump, who saw Harvey as an opportunity to improve his reputation for responding to crises.
But, it is also the same Trump, who is in favor of dismantling EPA regulations allowing that agency to regulate carbon emissions from fossil fuels. That might be a plus for the oil and gas industry, especially with regard to the controversy surrounding methane emissions from operations. But, it might not. As James Osborne, writing in the Houston Chronicle, notes, Trump, “who has railed against climate change as an overblown theory perpetuated by a politicized scientific establishment, will make his decision against the backdrop of deadly storms, including Hurricane Harvey, which have brought climate policy to the forefront again.”
It is a complicated algorithm, is it not? How does one wrest stability, without inducing stagnation, out of situations (hurricanes and presidents), whose elements continually feed the disturbing disruptions they create? 
