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Gulf refineries escape major damage from Ida, processing back up within three weeks

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Refineries that process more than 2.7 MMbd—approximately 14% of total U.S. refining capacity—were along the path of Hurricane Ida this past week. Most of those refineries (representing 2 MMbd, more than 11% of total U.S. capacity) are expected to be back online within three weeks. 

However, wider storm damage throughout the region, beyond the refineries themselves, means that the return to pre-storm crude run rates for refineries sustaining flood or wind damage will take longer—a month or more, according to the IHS Markit Refining and Marketing service.

Nevertheless, outright refined product price impacts are expected to be muted as the storm hit during a relatively weak period for demand.

Total major refined product demand has recovered from the depths of 2020 when demand was 13.5% below 2019 in the third quarter.  However, current demand is only somewhat stronger—still 5% below the third quarter of 2019—and not reaching pre-pandemic levels.

"While it is still early in the damage assessment phase, it appears that the majority of refineries impacted by Hurricane Ida are in the process of restoring power and operations to assets that were not flooded or sustained significant wind damage. However, there appears to be a small number of refineries that sustained significant wind and flood damage which will be down up to 1 to 2 months. The overall number of refineries in this category appears to be limited, muting price impacts, in part due to lower pandemic-related demand," said Debnil Chowdhury, executive director, IHS Markit.

Waterborne crude and product imports and exports have also been disrupted due to the shutdown of multiple ports in New Orleans and damage reported to refinery docks in the region. As of the morning of August 31 it was reported that as many as two dozen vessels and barges were adrift as they broke off from docks during the height of the storm. Flooding is also obstructing the movement of tanker trucks.

OPIS by IHS Markit has also reported that rail delays and possible track damage may impact supply in and out of refineries for up to three days to one week.
Refinery infrastructure outside of the physical refinery gate essential for operations are beginning to ramp up quickly, muting price impacts.  During the hours immediately preceding the storm, significant concerns existed regarding two product pipelines serving the U.S. East Coast. However, the concerns were eased as the Colonial Pipeline resumed operations Monday and the Kinder Morgan Products SE pipeline, formally known as the Plantation System, is on track for startup on Wednesday as upstream terminal capacity in Baton Rouge sees power return. Finished gasoline supply constraint concerns were also quelled as the USEPA eased blending requirements by applying RVP waivers for Mississippi and Louisiana. Other states impacted by the product supply implications of the outage such as Alabama and Florida are also campaigning for RVP waivers.

The impact of the storm on refined product supply initially appeared to be greater than the impact to crude supply. Pricing in New York Harbor and the U.S. Gulf Coast increased for refined products and cracks/margins increased due to the outages in Louisiana. This is expected to encourage refiners outside of Louisiana on the Texas coast to have the incentive to run at higher utilization rates to balance the outages due to Hurricane Ida. Prices will most likely come back to normal once Colonial and Products SE pipeline are flowing at normal utilization rates to the Eastern United States and refineries in Texas increase runs in response to the higher margins.

The overall impact on pump prices is expected to be somewhat muted—between 2-5 cents per gallon in the upper range—as the resurgence of the coronavirus combined with the approaching end of the summer driving season dampen the prospects for continued growth in product demand, according to IHS Markit.

"The spread between demand and supply was not as skewed towards demand as it would have been had there not been a resurgence of the Delta variant of the coronavirus. This is also the time of year where seasonal gasoline demand peaks and starts to fall heading into winter. As a result, outright prices are not expected to increase much higher than what we saw immediately after landfall,. said Chowdhury.

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