U.S. FREES half a million barrels of oil from strategic reserve.
A half million barrels of U.S. government oil is being released from the Strategic Petroleum Reserve to a Gulf Coast refinery — the first emergency discharge in five years — after storm Harvey halted foreign crude deliveries to the heart of the nation’s refining industry.
The crude released to the Phillips 66 refinery will take the form of an exchange, in which the Houston-based company will replace the oil once supplies are flowing again. As many as 11 ports were shut during Harvey’s five-day spin across hundreds of miles of the Texas coast, leaving 28 tankers laden with more than 18 million barrels of overseas oil drifting offshore as of Wednesday night.
Harvey is straining the fuel-making capacity of the world’s largest economy just as President Donald Trump’s administration mulls whether
to shrink the 40-year-old safety net established to prevent crippling crude shortages. Trump wants to sell off half the reserve. Last year, Trump’s predecessor Barack Obama asked Congress to auction a fraction of the oil to help fund $2 billion in upgrades to the 60 underground caverns that hold the crude.
The decision by U.S. Energy Secretary Rick Perry authorizes 200,000 barrels of sweet crude and 300,000 barrels of sour crude to be drawn from Strategic Petroleum Reserve’s West Hackberry site and delivered via pipeline, Jess Szymanski, a spokesman for the department, said by email.
The trickle being offloaded from the 679 million-barrel reserve isn’t yet large enough to affect prices in the broader market, said Gene McGillian, market research manager at Tradition Energy in Stamford, Conn.
“If we saw a sizable release from the [Strategic Petroleum Reserve], you would probably see the market come under pressure, but 500,000 barrels, while it could help that refinery, I’m not sure that’s having much of an effect on the market,” McGillian said by telephone.
Four ports including those in Galveston and Texas City partially have reopened but it wasn’t clear if the restrictions in place would allow tankers to dock. Seven other ports remained closed.
Harvey also shuttered about 23 percent of U.S. refining capacity, with multiple refineries in the Houston, Port Arthur and Beaumont, Texas, areas closed, including the nation’s largest operated by Motiva Enterprises LLC.
The storm also led to some flows halted on the Colonial Pipeline, a major transportation source for fuel to the Northeast.
The pipeline’s operator estimated Thursday that it can resume carrying fuel in the Houston area by Sunday, potentially avoiding a lengthy shutdown that would intensify gasoline shortages.
The Colonial Pipeline provides nearly 40 percent of the South’s gasoline. It runs underground and is now under water in many parts of Texas, where inspections are needed before it can be fully operational again, Colonial spokesman Steve Baker said Thursday.
The Georgia-based company remains able to operate
its pipeline from Louisiana to states east and northeast of there, though deliveries will be “intermittent,” the company said.
The last time the Energy Department authorized an emergency exchange of oil from the reserve was in 2012 during Hurricane Isaac. During that time, Marathon Petroleum Corp. requested an emergency loan of 1 million barrels to supplement its supplies to support refining operations, according to the Energy.gov website. Prior to that, exchange agreements also occurred in 2008 during Hurricanes Gustav and Ike.
Phillips 66’s Lake Charles, La., refinery has capacity to process 239,400 barrels a day, according to data compiled by Bloomberg. In January, the Energy Department accepted a bid by Phillips 66 to buy crude from the reserve, the first sale of government crude since 2014. The sale was the first in a series of planned draw-downs through 2025 totaling almost 190 million barrels, or 27 percent of the reserve. A second sale of 10 million barrels is expected before October.
World energy markets, from butane in Asia to gasoline in Latin America and diesel in Europe, are feeling the ripple effect of the storm, highlighting the growing importance of the U.S. for the global oil industry.
When Hurricane Katrina hit in 2005, the U.S. exported just 800,000 barrels a day of mostly refined products. Today it ships more than 6 million barrels a day of crude and fuels, an increase driven by a boom in shale production, the end of a ban on crude exports and the expansion of several refineries.
“The global implications of a stormy season in the U.S. Gulf of Mexico have mounted as the U.S. has emerged as a global energy hub,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.
Information for this article was contributed by Jessica Summers, Lucia Kassai, Catherine Traywick, Dan Murtaugh and Javier Blas of Bloomberg News and Jeff Martin of The Associated Press.