Hurricane Laura Refining Impacts Day 1 (August 26, 2020)

Hurricane Laura remains a major threat to refined product supply while Marco’s intensity has declined.  Laura is expected to make landfall in the early morning hours of August 27th in Louisiana or Texas. If previous major hurricanes are any indication, the dual threat storms pose noteworthy risks to US Gulf Coast refiners and those that rely on products supplied from the region. Laura is expected to have a major impact on refining assets in the Beaumont/Lake Charles/Port Arthur and Houston refining centers. As of Wednesday morning, eight Gulf Coast refineries confirmed they are shutting, reducing rates, or are idled. These plants represent around 2.5 MMb/D of atmospheric distillation capacity or 14% of US of total refining capacity, and a slightly larger fraction of US fuel production. As the storm progresses, IHS Markit expects further refineries to reduce rates or shut down completely as storm surge impacts logistics and refinery operations in the impacted refining centers.  One important consideration is that, even if the refineries themselves may escape unharmed, employees may not be able to reach them until the flooding subsides.

Assessing non announced shutdowns, the highest risk is in New Orleans, Baton Rouge, Beaumont/Lake Charles/Port Arthur, and Houston. The 19 refineries split between the general New Orleans, Baton Rouge, Beaumont/Lake Charles/Port Arthur, and Houston regions are likely to face operational complications from the storm, with multiple closures anticipated although as of this morning, unannounced. Around 5.9 MMb/d of refinery capacity is at risk representing 8.5 MMb/d of total refined product supply. 

While unlikely that the market will see shutdowns approaching the magnitude of the total capacity in the storms path, the cone of uncertainty and the vast number of refineries in its path is noteworthy and will have global implications on product supply.  Besides the curtailment of supply to the local PADD 3 market, exports to Latin America, Europe, and inter-PADD transfers to PADD 1 are also at risk. PADD 3 refinery throughput may remain low once the storms pass. Utilization stalled below seasonal averages in August because of COVID-19 impacts on refined product demand. Low margins may encourage some refining capacity to remain down for an extended duration until gasoline and diesel inventories clear.