THE COST OF HAR­VEY

Storm’s im­pact will be felt at pumps

Montreal Gazette - - FRONT PAGE - GE­OF­FREY MOR­GAN

The eco­nomic im­pact of Trop­i­cal Storm Har­vey’s de­struc­tion has been lim­ited on East­ern Canada so far, but the fall­out from the storm is ex­pected to af­fect oil mar­kets for months.

Har­vey, a cat­e­gory-4 hur­ri­cane later down­graded to a trop­i­cal storm, has bat­tered Houston and the wider re­gion since Fri­day, forc­ing thou­sands from their homes and shut­ting down many oil re­finer­ies on the U.S. Gulf Coast.

Citi Re­search an­a­lyst Ed Morse said in a Wed­nes­day note that East­ern Canada and Mex­ico im­port large vol­umes of oil from the U.S. and would be “most dra­mat­i­cally im­pacted by weather-dis­rup­tive flows and po­ten­tial hur­ri­cane dam­age.”

This year, East­ern Cana­dian re­finer­ies have pro­cessed an av­er­age of 300,000 bar­rels of oil per day from the U.S., ac­count­ing for 12.5 per cent of to­tal Cana­dian con­sump­tion, Morse noted.

Bar­clays Cap­i­tal an­a­lyst Paul Cheng said in a Wed­nes­day re­search note that Har­vey had shut in 2.6-mil­lion bar­rels of re­fin­ing ca­pac­ity per day at this point — or 15 per cent of to­tal re­fin­ing ca­pac­ity in the coun­try. “If there is pro­longed flood­ing and se­vere weather, we would not be sur­prised if at its peak 2.5-3.0 mil­lion bpd (if not a bit a higher) of through­put is shut­down,” Cheng said.

In the last month, two ship­ments of oil from the U.S. Gulf Coast have sailed to re­finer­ies in Come By Chance, N.L. and Le­vis, Que., Gen­scape oil market an­a­lyst Hil­lary Steven­son said. East­ern Cana­dian re­finer­ies had been pro­cess­ing even more oil from the U.S. Gulf Coast be­fore Au­gust as there had been a dis­rup­tion at the Syn­crude Canada Ltd. up­grader in Al­berta.

How­ever, En­bridge Inc.’s Line 9 pipe­line be­tween On­tario and Que­bec has al­lowed Western Cana­dian oil pro­duc­ers to send more oil east­ward, help­ing re­duce the need for U.S. and for­eign oil in East­ern Canada, Steven­son said. As a re­sult, the im­pact on East­ern Canada will be more muted, she said.

Sun­cor En­ergy Inc. and Im­pe­rial Oil Ltd. spokesper­sons said their re­finer­ies in East­ern Canada had not been im­pacted so far by the storm. Valero En­ergy Corp. did not re­spond to re­quests for com­ment.

A po­ten­tially larger im­pact will be on Cana­dian oil pro­duc­ers, who have been work­ing to ac­cess the U.S. Gulf Coast re­fin­ing market for years.

Steven­son said Tran­sCanada Corp. has re­duced flows of Cana­dian crude oil on its pipe­lines be­tween Cush­ing, Okla. and the U.S. Gulf Coast as a re­sult of the storm, which has forced Cana­dian pro­duc­ers to stock­pile more of their crude at large stor­age fa­cil­i­ties in the U.S. Mid­west.

“We could see a backup all the way to Ed­mon­ton and Hardisty,” Steven­son said, re­fer­ring to the two largest oil stor­age hubs in Al­berta.

Gen­scape re­fin­ery an­a­lyst Lee Wil­liams said it’s un­clear how long the re­finer­ies in Texas will be shut down.

“It’s still a lit­tle early to tell,” he said, not­ing some of the fa­cil­i­ties on the coast were pro­tected by wa­ter levies, though there have been re­ports of flood­ing at oth­ers.

If hur­ri­cane Ka­t­rina, which bat­tered Louisiana in 2005, is a guide for how long it will take be­fore the re­finer­ies on the Gulf Coast re­cover, it may take three months be­fore oil pro­duc­tion, gaso­line prices and re­fin­ery uti­liza­tion re­turns to preHar­vey lev­els, said ARC En­ergy Re­search In­sti­tute’s director of re­search Jackie For­rest.

For­rest said she didn’t ex­pect a big change in oil prices, ei­ther for West Texas In­ter­me­di­ate bench­marks or Western Cana­dian Se­lect, as a re­sult of the storm be­cause both the sup­ply of oil and the de­mand has been af­fected by the storm.

“When you look back at Ka­t­rina, there wasn’t much price es­ca­la­tion — WTI in­creased a cou­ple dol­lars a bar­rel,” For­rest said, call­ing it “a pretty small change to prices.”

U.S. gaso­line prices for Septem­ber delivery rose 6.3 per cent to $1.8964 a gal­lon, while West Texas In­ter­me­di­ate crude fell one per cent to US$45.96 a bar­rel.

When you look back at Ka­t­rina, there wasn’t much price es­ca­la­tion — (West Texas In­ter­me­di­ate) in­creased a cou­ple dol­lars a bar­rel ... a pretty small change to prices.

ERICH SCHLEGEL/GETTY IMAGES

Res­cuers from Odessa, Texas, make their way along Eldridge Parkway in west Houston on Wed­nes­day. Trop­i­cal Storm Har­vey has shut down many oil re­finer­ies on the U.S. Gulf Coast and could have a larger im­pact on Cana­dian oil pro­duc­ers.

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