Forecast Strong hurricane season brings risk to U.S. oil and natural gas industries

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Meteorologists predict a particularly intense Atlantic hurricane season this year; they expect 20 to 25 named storms, with a possibility of 30 or more, according to reports from AccuWeather in April. Colorado State University similar predictions an estimated 23 named storms this year. The potential for a stronger hurricane season signals an increased risk of weather-related production disruptions in the U.S. oil and natural gas industry.

The 2023 Atlantic hurricane season was 20 named storms, but only one hurricane made landfall in the United States. None of last year's storms had a significant impact on U.S. petroleum infrastructure. More information about energy infrastructure and potential storm risks is available via our Energy Atlas.

What is hurricane season?

The National Oceanic and Atmospheric Administration (NOAA) National Hurricane Center defines the Atlantic hurricane season as running from June 1 through November 30. In general, June is the month when the earliest named storms begin to form in the Atlantic Basin, and the strongest hurricanes usually form in August and early September. In the United States, hurricanes most often strike the Southeast (PADD 1C) and the US Gulf Coast (PADD 3).

How do hurricanes affect petroleum markets?

Hurricanes primarily affect petroleum markets by disrupting crude oil production and refinery operations. Offshore crude oil in the United States is concentrated in the Federal Offshore Gulf of Mexico (GOM) and could be significantly limited by inclement weather. Offshore oil and natural gas production units face some of the most severe hazards associated with hurricanes and tropical storms; they must have emergency procedures in place to evacuate non-essential personnel and temporarily halt production. By 2023, GOM production from crude oil accounting for 14% of U.S. crude oil production.

Crude oil refining is also affected by hurricanes in certain parts of the Gulf Coast. Refineries along the Gulf Coast of Texas and Louisiana account for nearly half of U.S. refining capacity. These facilities are at risk of flooding or power outages due to major storms or hurricanes. Like floating production facilities at sea, many refinery operators will evacuate non-essential personnel and temporarily halt production if they believe severe weather could injure workers or damage their facilities.

Do Hurricanes Affect Natural Gas Markets?

A hurricane could also reduce natural gas production in the GOM, which is largely the case associated gas production; However, recent hurricanes have had a much smaller impact on overall U.S. natural gas supplies because natural gas production in the GOM has been declining for years. The GOM has provided this less than 2% of total US natural gas production in 2023down from 17% in 2005, when Hurricanes Katrina and Rita interrupted significant volumes of natural gas production.

Hurricanes can impact U.S. natural gas demand by interrupting liquefied natural gas (LNG) exports. The United States has nearly 13 billion cubic meters of LNG export capacity per day on the Gulf Coast, making the country vulnerable to weather-related disruptions such as hurricanes. Although LNG facilities generally have many layers of protection against direct impacts, hurricanes can damage electrical and maritime infrastructure and hinder the movement of ships. The consequences of, for example Hurricane Laurawhich made landfall in August 2020, temporarily halted LNG exports from the Sabine Pass and Cameron LNG facilities in Louisiana.

What determines the magnitude of a weather-related impact on the markets?

The location of a storm is the most important determinant of the severity of its impact on the oil and natural gas markets, followed by the intensity of the storm. An intense storm that hits a region without production or refining capacity is unlikely to impact overall U.S. supplies.

However, hurricanes can affect local consumption. In cases where regions face an impending major hurricane or other emergency, changes in consumer behavior can lead to brief regional spikes in fuel demand, which can affect prices due to local supply shortages or panic buying.

Hurricanes can also disrupt the supply chains of petroleum products. Although petroleum fuels are not refined in Florida, the state has a significant demand for gasoline. Fuel supplies in Florida are mainly shipped barges from Gulf Coast refineries, such as those in Texas and Louisiana. Hurricanes and tropical storms can lead to short-term disruptions to this transshipment, causing shortages in the local supply.

How much refinery capacity is at risk from hurricanes?

The Texas Gulf Coast The refining region has clusters of refinery capacity in Corpus Christi, Port Arthur and the Houston-Galveston region. The refining region has a refinery capacity of 5.5 million barrels per day (b/d) and has the largest refineries in the United States, including Motiva's 626,000 b/d Port Arthur refinery, Marathon's 593,000 b/d Galveston Bay refinery and ExxonMobil's 610,000 b/d Beaumont refineries and 564,000 b/d Baytown refineries.

Refineries on the Louisiana Gulf Coast accounting for an additional 3.3 million barrels per day of capacity, including Marathon's 596,000 barrels per day Garyville refinery northeast of New Orleans and ExxonMobil's 523,000 barrels per day Baton Rouge refinery.

The two refining areas together they account for 48% of total US refinery capacity. The path of a single hurricane or major storm is unlikely to affect more than one cluster of refineries. However, due to the total volume of refining capacity in both regions, more than 1.0 million barrels per day could be temporarily taken offline in anticipation of a major storm.

Refineries that suffer major damage or are flooded by a storm can be taken offline for a longer period of time. Major storm damage costs a lot to repair. In severe cases, this damage can lead to a refinery being permanently closed. In 2021, Phillips 66's Alliance refinery in Belle Chase, Louisiana Closed after significant storm damage.

Hurricanes don't often bother the Mid-Atlantic refinery (PADD 1B), although the largest refinery on the East Coast — the 259,000 barrel-per-day Bayway refinery in New Jersey, operated by Phillips 66 — was affected by Hurricane Sandy in 2012. Similar incidents at Bayway or storms restricting imports into New York Harbor also pose a potential risk to U.S. petroleum supplies.

Does EIA predict hurricane effects on oil in the? Short-term energy prospects?

In our Short-term energy prospectswe assume that a percentage of GOM crude oil production will be offline during each month of the hurricane season, based on the average percentage of offline monthly production during the previous ten hurricane seasons (2014-2023).

We do not forecast reduced refinery activity explicitly attributed to hurricane season. However, the seasonal effects of hurricane-related recessions are partially captured by monthly seasonal variables.

Main contributors: Kevin Hack, Corrina Ricker

Article by Today in Energy.