Saturday, September 13, 2008

For energy geeks like me...

Here's is Stratfor's forecast on what could happen to the US refining industry when Hurricane Ike hits Houston.

3.5 million barrels a day refining capacity.

Bear in mind global capacity is about 80 - 90 mil a day.

We are talking about a lot of capacity taken off line.

Anyhow, Stratfor accurately predicted the chaos that hit New Orleans after Hurricane Katrina, before the storm hit. They went as far as predicting the city would never be the same again, and they were spot on.


United States: Hurricane Ike Targets an Energy Industry Achilles' Heel

Stratfor Today » September 12, 2008 | 2351 GMT

Hurricane Ike is, at the time of this writing, less than seven hours away from landfall. The storm appears set to hit the Texas coast at the point and angle that would maximize damage to the energy industry located in the Houston area. Should this happen, Ike’s impact will reach far beyond Texas and is likely to be felt throughout the world.

At 6:30 p.m. Central Time, Hurricane Ike is bearing down on the city of Houston.

The odds of a hurricane’s storm surge striking the barrier islands that protect Galveston Bay and Houston at just the right spot and angle that would allow the surge to reach not just Texas City but also the northern bay and the channel are very low. Successfully predicting the specific approach of any hurricane is a crapshoot. But as a storm gets closer and closer to the shore, the margin of error in such predictions shrinks. And with Ike now less than seven hours away, it appears that it is aiming for the bull’s-eye.
galveston bay

The Houston area is home to roughly 6 million people, and already 250,000 have been evacuated in the face of what is expected to be the strongest storm surge on record. While Ike is “only” a Category 2 hurricane, it is monstrously wide, and the surge is already being felt from Galveston — an island-city suburb of Houston — where it is expected to make landfall sometime shortly after midnight to New Orleans, several hundred miles away.

Damage may well top $15 billion, hurricane-force winds are sure to wreak havoc over a substantial portion of Texas, and rain-related flooding will be remarkably widespread in Texas’ slow-draining soils.

Yet not to sound callous, but Stratfor is not particularly worried about most of the storm’s likely carnage. This is not going to be a repeat of Katrina’s strike on New Orleans in 2005. Unlike New Orleans, Houston is well above sea level, and rich in preparation, reserve funding and political clout. There are multiple routes of entrance and egress to facilitate recovery efforts, unlike New Orleans’ singular line of access. To put it bluntly, Texas can take it.

The impact that concerns us will be felt beyond Texas — possibly globally — and will be on the energy industry.

Thirteen oil refineries processing 3.5 million barrels per day of crude are within Ike’s easy reach. Three of these are just inside Galveston Bay — Houston’s “bathtub” ocean access — in Texas City. Several others are up at the north end of the bay at the opening or on something called the Houston Ship Channel, a snaking waterway that allows maritime access deep inland. The channel is home to more than 300 separate petrochemical complexes — one of the densest concentrations of such facilities in the world. Between barrier islands, the size of Galveston Bay, and the twists and turns in the channel, normally major damage to these facilities could be (almost) casually discarded. Such a scenario is now a definite possibility.

Further down the coast to the east, and well within the likely damage zone, the refining complexes at Port Arthur and Port Charles — areas much less protected by geography than Houston — face the very real likelihood of damage as well.

Should Galveston Bay and the channel be inundated in the worst-case scenario, at a minimum these petroleum facilities will be below their capacity for a week. Recovery from substantial water damage could take more than six weeks, and even that assumes that nothing goes disastrously wrong. In an economic environment that could certainly be described as weak, a sustained hit to energy availability is perhaps the thing the United States economy needs least.

For now, all we can do is wait. The facilities have all been closed down and many evacuated as a precaution. (And American wholesale gasoline prices have risen in acknowledgement.) The storm will hit just after midnight; damage assessments will begin within hours of Ike’s passage, but will take days to complete. Ike could well take a last-minute turn to the northeast and leave Houston largely untouched, as Hurricane Rita did three years ago, but at present it is also possible that it could also do something that no hurricane in American history has done: in a single swift punch truly hit the country where it hurts.

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