The Fuse

Barry Rocks Gulf of Mexico Oil Production

by Alex Adams | @alexjhadams | July 19, 2019

Oil companies are reopening production platforms in the Gulf of Mexico after Tropical Storm Barry forced the closure of almost three quarters of the area’s production. This storm and its consequences offers another reminder of the vulnerability of the region’s energy infrastructure to weather events.

Predictions of the storm’s effect resulted in the shuttering of some production as early as three days before Barry’s arrival. BP, Chevron, Royal Dutch Shell and ExxonMobil—among other producers—evacuated workers from their rigs, Louisiana governor John Bel Edwards declared a state of emergency for the state, and the Port of New Orleans was closed to incoming traffic.

Nearly 70 percent, or 1.3 million barrels per day (Mbd) of crude oil production in U.S.-regulated areas of the Gulf of Mexico was cut because of the storm. In preparation for Barry, oil producers shut 283 platforms – accounting for 42 percent of the area’s total. Natural gas production in the Gulf was also cut by 56 percent, or 1.5 billion cubic feet per day. In addition, Phillips 66 closed its 253,600 barrel-per-day (b/d) capacity Alliance refinery in Belle Chasse, Louisiana, ahead of the storm, with a full shutdown completed by Friday, July 12.

As the U.S. Gulf of Mexico accounts for 16 percent of domestic oil output, the storm had a pronounced effect on oil prices. U.S. benchmark West Texas Intermediate climbed 4.5 percent to $60.43 per barrel, and global benchmark Brent also jumped 4.5 percent to $67.04 per barrel, pushing oil to a seven-week high.

Tropical Storm Barry represents the first major storm of the 2019 Atlantic hurricane season, which runs from June through November and peaks between August and November. Storms that disrupt oil and gas operations are becoming increasingly common, and the Gulf of Mexico represents a vulnerable spot for U.S. energy security, as just over half of all domestic refinery capacity is located near the Gulf coast.

Concerns over Tropical Storm Barry’s effects on the oil industry also brings back bad memories of 2017’s Hurricane Harvey, and 2005’s Rita and Katrina. During Harvey, twenty-four refineries closed as the storm barreled toward Houston and the Texas coast, home to some of America’s largest refineries and 31 percent of U.S. refining capacity. More than two weeks after Harvey, more than 2.4 Mbd was still offline—accounting for 13 percent of the country’s refining capability—as refiners recovered from historic flooding. Gasoline prices also jumped 7 percent. Hurricanes Rita and Katrina close more than 23 percent of U.S. refining capacity, and national gasoline prices increased almost 15 percent, or close to 40 cents per gallon during that period.

This latest storm to disrupt oil and gas operations show that while the U.S. energy sector on the Gulf Coast is resilient, the effects of these storms can add significant disruption to both the upstream and downstream portions of the industry.