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The Energy Impacts of Hurricane Harvey

By Direct Energy Business

Oil refineries, oil rigs, and gas refineries have all been shut down and require inspection.  

Hurricane Harvey's impact has gone far beyond Texas and Louisiana. While those states have certainly been impacted the most, many people in other areas have also found that they're affected by the disruption--especially when it comes to gas prices. Many states have already seen a rise in gas prices--an average of seven cents across the nation since Thursday. How are the changes in gas prices going to continue to impact people as the results of Hurricane Harvey drag on? Here's what you need to know. 

Current Gas Prices Across the Nation

Several states have already experienced a rise in gas prices as a result of Hurricane Harvey. This rise hasn't been universal; while some states have seen little change, states that are highly reliant on the Colonial Pipeline as a source of gas have seen higher increases. Eight states--South Carolina, Ohio, Delaware, Maryland, Georgia, North Carolina, Virginia and Texas--have already seen an increase of at least ten cents per gallon. Other areas have seen even more: Dallas, Texas; El Paso, Texas; Athens, Georgia; and Dayton, Ohio have seen increases as high as fifteen cents per gallon

Continuing Price Increases

Overall, motorists across the United States can expect to see significant increases in gas prices thanks to Hurricane Harvey. Initial predictions suggested that they should expect increases of five to fifteen cents per gallon, but according to USA Today, that increase has risen to ten to twenty cents per gallon by the time the disruption settles down. While this pattern is distressing, especially in states like South Carolina, which relies heavily on the Colonial Pipeline coming out of Texas to supply its gas, several factors may help mitigate rising gas prices in many areas--including historic high gasoline inventories in many areas. It's important to note, however, that most of the refining facilities in the United States operate at peak capacity around the clock. This means that even when the refineries reopen, there is no spare time for them to "catch up" on refinement that went undone while the facilities were shut down.

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Why Harvey Creates Oil and Gas Concerns

Hurricane Harvey hasn't just caused flooding throughout the areas covered by many oil refineries. It's also caused a number of other problems that have made it difficult for refineries to move oil. Several factors play into the continuing oil disruption, keeping gas and energy prices high--and many of those problems won't be easily solved for quite some time. 

The Colonial Pipeline and any others impacted by Hurricane Harvey must be shut down and fully inspected before they can be put back in action. Each part of the pipeline must be examined carefully in order to ensure that there has been no damage; if cracks or other damage is found, repairs may keep the pipeline shut down even longer. 

Supply chain disruption makes it difficult to get even current gas supplies out to the people that need it. Roads are still shut down and flooded in the wake of Hurricane Harvey, and trucks and other vessels need a way to get through before they'll be able to deliver oil safely again. This may mean adding miles to the current supply chain or even inability to reach some of the places where gasoline is desperately needed. 

Refineries are shut down. Throughout the areas impacted by Hurricane Harvey, many refineries have been forced to close down altogether. They're unable to move forward with their current production, and people won't be able to return to work for some time yet. Many of the individuals affected by Hurricane Harvey may be temporarily displaced, unable to return to their homes or to get to work even if the refineries were open. Not only that, equipment must be carefully inspected before the refineries can return to normal operation. 

Oil and gas rigs are shut down. Like the refineries, these rigs must be carefully inspected before returning to operation. They also rely on people to be able to get to work in order to run them effectively--and people displaced by Hurricane Harvey may not be able to work until other issues are dealt with. 

There's too much crude oil, but not enough processes gasoline. Refineries are particularly impacted by the aftereffects of Hurricane Harvey, while crude oil supplies are still ample. As a result, processed gasoline is more impacted by Harvey than straight crude oil. Actually, the price of crude oil--which now has nowhere to go, since there aren't enough facilities in the Southern United States to accept it--has dropped globally, while gasoline prices have risen. 

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Future Predictions

How much oil, gas, and natural gas prices across the United States will be impacted long-term by Hurricane Harvey will depend on a number of factors. First and foremost, it's important that the refineries and shipping facilities return to operation as soon as possible, restoring the supply chain and moving barrels of oil and gas to the places that need them most as soon as possible. The sooner this happens, the sooner the shift in prices will balance out, getting things back to normal. 

Natural gas, on the other hand, appears to be less impacted by the demands of Hurricane Harvey. Several things have led to this relatively stable position: 

  • Lower demand for power, since many power plants are currently shut down as a result of Harvey
  • Industrial customers shutting down, making lower demands on the natural gas supply in the aftermath of the devastation
  • Decreased need for natural gas as a power source, as cooler temperatures have made it less imperative

Currently, the Texas grid is drawing significantly less power than usual as a result of Hurricane Harvey. This means that the demand for natural gas has dropped in order to balance the drop in supply--a serious benefit for others who rely on natural gas throughout the disaster. While this has a positive impact in the short-term, as demand begins to increase, it's critical that refineries begin working again as soon as possible in order to maintain that balance. The speed at which refineries can restart will have a big impact on how much gas prices rise and how energy demands are met across the United States and internationally. 

International Balance of Prices

While the United States market may not suffer substantially as a result of Hurricane Harvey, international exports may see more significant shifts in market demand. One of the biggest results of Harvey is the necessary shutdown of many exports--particularly since products are diverted to US interests first. Since the United States has stepped up its energy-related exports, from processed gasoline or raw oil to natural gas, the international market may struggle to absorb the temporary break in exports. As a result, gas and energy prices may rise internationally until shipping ports are able to reopen and the normal supply line is restored. 

Hurricane Harvey has caused a wide-spread of disruption and devastation--and that impact will be felt far beyond Texas and Louisiana as the shutdown throughout Texas continues. Currently, it's estimated that around 22% of the United States refining capability is shut down as a result of the natural disaster. In the days following the disaster, restoration is critical to ensuring that energy prices around the United States will return to normal. 

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Posted: September 06, 2017

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