The impact of Hurricane Ida - Update August 31

[dan_s]

The Energy Report: Picking Up The Pieces Post Ida < with my thoughts in blue.
By Phil Flynn Aug 31, 2021 09:23AM ET

In the aftermath of Hurricane Ida, the U.S. energy industry is still trying to assess the damage and get back GOM production back online. The BSEE reported that based on operator reports, it is estimated that approximately 94.6% (1,721,809 barrels per day) of the current oil production in the Gulf of Mexico has been shut-in.

BSEE estimates that approximately 93.57% of the gas production in the Gulf of Mexico has been shut-in. Oil prices have fluctuated but are lower on concerns that refinery outages may last weeks and that could lead to a backlog of crude oil production if oil should start coming back online today. But it may end up going into storage if the refineries cannot run. < If refineries are offline for long, US refined product inventories will go "dangerously" low since they were already lower than normal for this time of year.

Gasoline futures spiked up then pulled back, but generally added only a couple of pennies by the end of the day. We may see gasoline futures start to run up yet again if the reports from the refineries turn out to be bad. Gasoline imports from Europe should start hitting our shores in a couple of weeks, but it’s still going to be difficult to know the outcome of the impact on gasoline prices until we get more information. I would assume in the next 24 hours we’ll get a better idea of exactly where we’re at and where we’re potentially going.

The impact on the market has already been felt. Natural gas prices got hit hard because at one point there were over a million people without power due to Hurricane Ida. The Colonial Pipeline was shut down and was due to be restarted Monday night but hasn’t. That’s a sign of the progress we’re still trying to make. The extent of damage to refineries is being discovered and it’s difficult to bring refineries back online when there is a lack of power. < I expect natural gas prices to rebound quickly because the demand for power generation will come back quicker than the GOM production.

It’s not only bringing refineries back online, but it’s then transportation that is of concern. We have to get feedstock to the refiners as well. Grain prices got hit hard, especially corn, because the Mississippi was shut down. That caused grains for exports to be blocked. We’re going to continue to see other ramifications from the storm. The movements of the markets will be partially based upon the perception of how fast things can get back to normal.

On the plus side, Reuters reports that:

“Mexican state oil firm Petroleos Mexicanos (Pemex) said on Monday that it has resumed 421,000 barrels per day in oil production and brought back online 125 wells following a deadly fire at an offshore platform on Aug. 22. The accident in the southern Gulf of Mexico at the offshore platform that is part of Pemex’s most productive oil field Ku-Maloob-Zaap, knocked out about 25% of Mexico’s total production."

Javier Blas of Bloomberg reported that, “Japan, the world’s 4th-largest oil consumer, [was] struggling under Delta. Demand was again weak in July, down 7.8% vs July 2019. Since May, Japanese consumption has been weaker than expected due to the impact of the new variant on the recovery."

Argus Media gave this assessment:

Hurricane Ida left behind widespread power outages in Louisiana as officials today begin the painstaking process of assessing damage from the storm. About 1million households and businesses in the state were without power as of 6:30 pm ET on Monday, while about 89,000 were in the dark in Mississippi, according to the website PowerOutage.US.

"Local power utility Entergy (NYSE:ETR) said that all eight transmission lines serving the New Orleans area were knocked out of service by the hurricane, which has since been downgraded to a tropical storm. It may take days to assess the extent of the damage to the grid in New Orleans and weeks before power is fully restored.

"More than 2mn b/d of refining capacity in Louisiana was shut after the storm brought 150mph (240km/h) winds and nine-foot storm surge to areas near New Orleans, coastal Louisiana, and stretches of the Mississippi River yesterday. The region is also home to key facilities for offshore oil and gas support work, as well as ports and docks that handle a wide range of other commodities."

ExxonMobil (NYSE:XOM) shut down its 500,000 b/d refinery and petrochemical complex in Baton Rouge, Louisiana, today in the face of the widespread power outages and supply chain disruptions. Marathon Petroleum Corp's (NYSE:MPC) 565,000 b/d Garyville, Louisiana, refinery is “currently assessing a timeline for safely resuming operations” after shutting down ahead of Hurricane Ida.

US offshore operators evacuated staff and shut nearly all oil production in the Gulf of Mexico before the hurricane. Around 95pc, or 1.7mn b/d, of offshore crude output and 94pc, or 2.1 Bcf/d, of natural gas production were shut in as of 12:30pm ET today, the US Bureau of Safety and Environmental Enforcement said. This is a slight improvement over the percentages reported on 29 August.

Deliveries at the Louisiana Offshore Oil Port (LOOP) have also been suspended because of the storm. LOOP, about 20 miles (32km) off the coast from Grand Isle, Louisiana, is the only US port capable of fully loading Very Large Crude Carriers (VLCCs). Ports in Louisiana and Mississippi remained closed this morning as the remnants of Hurricane Ida moved inland.

New Orleans, Baton Rouge, Plaquemines, South Louisiana, St Bernard, and the Venice Port Complex in Louisiana all remained closed to traffic. The Mississippi ports of Biloxi, Gulfport, Pascagoula, and Port Bienville, also remain closed according to the US Coast Guard.

The next couple of weeks, as far as oil inventories go, are going to be very messed up. We’re going to take things a day at a time until we get through the total damage assessment.

As far as OPEC goes, more and more it looks like they’re going to follow through with their 400,000 barrel a day production increase and if there’s any surprises, it would be that the cartel decides to pause the increase to get a better handle on the impact on demand from COVID. < Global demand for oil based products has been higher than supply by more than a million barrels per day all summer. The market needs more oil from OPEC+.

[dan_s]

From RBC Capital Markets

News reports suggest that some 2 mb/d of refining capacity has been idled. For reference,
Louisiana portion of the Gulf Coast houses 3.7 mb/d of refining capacity, or 21% of total US
capacity. Naturally, idled capacity leads to lower refinery demand for crude, but the longer the
duration of the idled units (read: lowering the gasoline supply) impacts could cause havoc on
the refined product markets and retail gasoline prices, particularly heading into the heavily
trafficked Labor Day long weekend. However, the tightened supply picture needs to be
considered against the fluid and uncertain degree of demand destruction given that several
regions have been plagued with flooding and power outages. With companies currently
assessing damages, a current timeline for how long shuttered capacity will be down is still
uncertain. Louisiana Offshore Oil Port (LOOP) has also suspended deliveries, and inbound and
outbound traffic has been restricted at various ports in the Gulf up to Mobile, Alabama. LOOP
takes in around 90% of deep-water US production. If GOM production is offline, the impact of
LOOP being offline is largely neutralized.

While total US gasoline inventories are currently 7.3 mb below seasonally normal levels (-11.1
mb for distillate), the deficits reside in regions outside of the Gulf Coast. PADD 3 gasoline
stocks are currently 2.6 mb above the five-year average (+2.3 mb for distillate). In other words,
a short period of idled regional refining capacity may tighten product stocks, but the excess
buffer will serve as a shock absorber to prevent inventories from overtightening.

In terms of product pipeline disruption, the Colonial Pipeline has temporarily shut down
service between Houston and Greensboro as a precautionary measure. Lines that have been
shut are line 1 & 2, which controls the 1.5 mb/d of gasoline and 1.2 mb/d of distillate to
Greensboro, but Northeast service is still operable. Given that, we should not expect the same
severe disruption seen with the pipeline hack in May and Greensboro/Houston service should
be able to return quickly after Ida passes given the precautionary nature of the shutdown.

[mrbill]

Electrical power wiped out in New Orleans and neighboring Jefferson Parish which extends all the way down to
Grand Isle/Port Fourchon. The only viable savior is Propane. Think Generac's and other brands, portable units from Lowes, etc. We lived for 10 days last November after that junior h cane on a portable propane generator and were prepared this time. A draw down on the existing supplies will happen. And they are already tight.

[dan_s]

A friend of mine wants to add a Generac to his home but the waiting list for the size he wants is 3-6 months.

[mrbill]

A friend warned that the cost of the Generac, installation, and periodic maintenance visits could be daunting, 10k
maybe. Bro in law has a Generac, will ask him. Another friend just as a big generator, Kohler, and hooks up to an electrical outlet when ready. Son in law hooked it up to electrical last time, wife and daughter became experts at starting the propane gen and changing the tanks when needed. Refill tanks are at Dollar General, Winn Dixie, Walgreens,etc. around here. Filled a bunch at Blossman Gas facility last year. This has to be an added boost for the NGL producers.
Drove past Dollar General a day ago. Tanks all turned upside down. Wife says it means they are empty. could be wrong.
This could be "Year of the propane".