Harvey Hits U.S. Energy Epicenter

by Denise A. Bode

While our hearts go out to the people of America’s Gulf Coast as they deal with Hurricane Harvey and its aftermath, it is hard to overstate the impact of its striking the heart of America’s energy infrastructure. It is already sending ripples through energy markets worldwide, extending Harvey’s reach well beyond the Gulf of Mexico.  The Gulf of Mexico area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure in the United States. Gulf of Mexico federal offshore oil production accounts for 17% of total U.S. crude oil production and federal offshore natural gas production in the Gulf accounts for 5% of total U.S. dry production. Over 45% of total U.S. petroleum refining capacity is located along the Gulf coast, as well as 51% of total U.S. natural gas processing plant capacity.

With 10 refineries in the Gulf Coast region shut down, at least 4.3 million barrels per day of refining capacity, over 20% of U.S. capacity is lost. Six refineries have begun the process of assessing damage and restarting, but with water damage involved it is uncertain when they can be brought back online safely. Two refineries in the Gulf Coast region are operating at reduced rates. There are no reports of refineries unable to restart due to lack of commercial power.

The Colonial Pipeline, which operates the largest refined petroleum network in the country, is only operating intermittently when refinery and terminal product is available to fill the line. The Strategic Petroleum Reserve is operating and the Department has approved one exchange request from the SPR at this time, which commenced on Wednesday evening and has a second emergency exchange of 500,000 barrels of oil to a Louisiana refinery owned by Phillips 66 in Westlake, Louisiana. The new request brings the total to 400,000 barrels of sweet crude and 600,000 barrels of sour crude heading to the refinery. The Environmental Protection Agency (EPA) and the Department of Transportation (DOT) have provided waivers to 36 states so far to provide flexibility in the market to alleviate supply issues in the area.

To follow the progress of severe weather events, like Hurricane Harvey, the Department of Energy introduced serious weather event mapping several years ago. These interactive maps highlight the location of all energy infrastructure, so you can follow the impact during a major storm. EIA interactive maps following such weather events are linked here: https://www.eia.gov/special/disruptions/

In addition, DOE emergency response efforts include the regular posting of situational awareness reports of energy sector impacts. DOE situation reports have continued to provide details on Hurricane Harvey’s impact, and the energy industry recovery and restoration activities being undertaken. Link to DOE status reports: http://bit.ly/2vMv8XE

While the storm may be winding down, it is likely that its impact will be felt by the energy sector for years.    A new analysis from the University of Wisconsin’s Space Science and Engineering Center has determined that Harvey is a 1-in-1,000-year flood event, which is unrivaled by any storm in the historical record that has hit the United States. The impact is being compared to Hurricane Katrina and Sandy combined. The flooding still being seen covers an area along the Gulf Coast the size of the state of New Jersey.  And the clean up by all the folks driven out of their homes, can’t even begin until the water recedes.

And when the clean up begins, regulators will begin assessing the environmental damage as well.  The storm created havoc causing damage, emissions and fires at refineries, chemical plants and a number of Superfund sites in the epicenter of oil, gas and chemical production in the country.

But it will be the tragic loss of human life and impact on hundreds of thousands of Americans that will be front and center when the Congress returns after the Labor Day recess. The White House is proposing an additional $6 billion in aid for those stricken along the Gulf Coast. There is also likely to be a debate about the need for funding to harden coastal facilities to reduce the impact in the future. Texas and Louisiana state leaders, like George P. Bush, have been advocating for such advanced planning with their federal delegation.  This all comes as the Congress has a jam packed schedule where there are several must-pass items, including providing government funding for the fiscal year that begins Oct. 1, raising or suspending the ceiling on the federal government’s borrowing authority, and extending the taxes that fund the Federal Aviation Administration.  Adding to the urgency is the need to approve disaster aid following Hurricane Harvey. This agenda is balanced against a tight calendar through the end of the year — including 17 days in the Senate and 12 days in the House scheduled for September.






















          Anadarko Region Growth in Production Recognized by Its Addition to EIA Drilling Report

          The Anadarko Region, which was recently added to EIA’s Drilling Productivity Report (DPR), accounted for 437,000 barrels per day (b/d) of oil production and 4.9 billion cubic feet per day (Bcf/d) of natural gas production in July 2017. Production in the region has increased in 2017, and the region accounted for 13% of all new wells drilled in the country in July 2017. With the inclusion of the Anadarko Region, the DPR now covers about 87% of all active onshore rigs in the United States.


          The Anadarko Region covers a large portion of western Oklahoma and the northeast corner of the Texas panhandle. The region has recently seen an increase in activity, mainly from two areas commonly known as the STACK (Sooner Trend Anadarko Canadian and Kingfisher) and the SCOOP (South Central Oklahoma Oil Province) plays. The new region was defined in the DPR by identifying the most prolific oil-producing counties in the area. In 2010, the U.S. Geological Survey completed an assessment of the entire Anadarko Basin and estimated mean technically recoverable undiscovered resources of 495 million barrels of oil, 27.5 trillion cubic feet of natural gas, and 410 million barrels of natural gas liquids.

          The new-well production per rig in the Anadarko Region as reported in the DPR was 372 barrels per day (b/d) in July 2017, lower than in other oil-producing DPR regions. For example, production per rig in the Permian and Bakken were 609 b/d and 1,166 b/d, respectively. However, EIA expects productivity in the Anadarko Region to continue to increase in the near future as operators complete more wells.


          Drilling activity in the region has been increasing over the past year, as the rig count in the DPR region has increased from 84 in January to 129 in July. Anadarko’s rate of increase is second only to that in the Permian Region in 2017.

          The maturity of the oil industry in the region and its proximity to the trading and distribution hub in Cushing, Oklahoma, should allow producers to increase output using existing takeaway capacity. The relatively low transportation costs from the wellhead to Cushing may provide higher profits, allowing producers to continue operating in a relatively low-price environment. Trade press also indicates that several planned and recently completed pipelines are expanding transportation (takeaway) capacity in the region.

          According to EIA’s DPR, oil production increased in the Anadarko Region by 112,000 b/d from July 2013 to July 2017, hitting a peak of 498,000 b/d in March of 2015. The Anadarko Region is expected to contribute to U.S. production growth, given anticipated market conditions over the next 16 months. EIA forecasts production in the Anadarko Region to grow to 500,000 b/d by the end of 2018. The West Texas Intermediate crude oil spot price is forecast to increase from $47 per barrel (b) to $53/b over the same period.



          Michael Best Strategies’ Energy Team

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          Michael Best Strategies focuses on achieving clients’ objectives through unparalleled strategy development and deployment for implementation, pragmatic guidance on public policy development, and government relations. The Strategies team specializes in a full range of services, including government relations, public policy consulting, grassroots advocacy, public affairs, conference planning, and strategic political relationships. For more information, visit michaelbeststrategies.com.