An outsized reliance on not-so-reliable power grid
Outages that shut refineries help reveal value of Texas’ petrochemical industry
More than six weeks after a brutal winter storm brought Texas refineries and petrochemical plants to a standstill, raw materials and consumer goods produced at those Gulf Coast facilities remain in short supply.
Manufacturers have delayed production of automobiles and restaurant to-go bags. Homebuilders are unable to complete projects due to the increased costs of hard to get items such as foam insulation and radiant barrier roof sheathing. Drivers are paying more for gasoline and diesel.
Texas, and particularly its southeast coast, is home to almost 30 refineries and petrochemical plants. When February’s winter storm and unprecedented cold knocked out power and forced most of them to shut down or slow operations, it threatened supply chains and idled tens of thousands of workers, proving again how vital the industry is to the state, nation and even the world.
The refining and petrochemical industry is accustomed to weather threats, having faced in quick succession Hurricane Harvey in 2017, Tropical Storm Imelda in 2019 and Hurricanes Hanna, Laura and Delta in 2020. But the winter storm, with the ensuing power crisis
and subfreezing temperatures, was perhaps the most devastating for refineries, which endured burst pipes, leaks, damaged equipment, a shortage of crude and a long restarting process filled with repairs and numerous tests.
Among the industry’s suffering most from a lack of petrochemical products is the automobile industry, which uses a pliable plastic called polyvinyl chloride, or PVC, for dashboards and car body parts.
Toyota said in a statement last month that a supply shortage had slowed production at plants in Kentucky, West Virginia, Mississippi and Mexico. Honda said it suspended North American manufacturing for at least a week in midMarch.
The automobile industry will likely not return to full production until June as some refineries continue to come back online, research and analysis company IHS Markit estimates.
About 57 percent of U.S. PVC production was offline during the winter storm, according to S&P Global Platts. The PVC shortage is driving up prices, that have already more than doubled since summer 2020, S&P Global Platts said.
About 10 to 15 percent of the annual petrochemical supply along the Gulf Coast was taken out this year as a result of the freeze, according to Bob Patel, CEO of Houstonbased chemical manufacturer LyondellBasell, speaking at an industrials conference last month. It will be well into the fourth quarter before the industry sees the return of adequate inventory levels, Patel said.
Other chemicals in scarce supply include polyethylene, used to make plastic bags and films. Its production was cut by almost 75 percent of U.S. because of the storm. Polypropylene, used in plastic containers, sealants and plastic tubiing, production was reduced to 62 percent.
St. Paul, Minn.-based 3M, which manufacturers a wide range of products including abrasives, said in an email that the winter storm and refinery shutdowns have played a part in the increased prices of polypropylene and ethylene that the company is seeing since the freeze. February’s winter storm has put a strain on business operations at Houston-based Sullivan Brothers Builders. The Houston-based company can’t get the supplies it needs to build homes.
And when supplies are available, they are costly, the company said.
Sullivan Brothers said prices for oriented strand board, an engineered wood formed by adding adhesives, have increased by 25 percent since the freeze. The company is anticipating another price hike this month as demand remains high and supply low.
The company also is facing supply allocations on foam insulation, with prices up 30 percent since the winter storm.
Sullivan Brothers said it expects supplies of radiant barrier roof sheathing, a plywood coated with plastic film and foil to keep homes cool during the summer, to dry up soon.
Scott Burrer, general manager at Sullivan Brothers, said the company can’t get a timeframe from suppliers on when the shortages and high prices will end.
“You don’t know if you’re even going to be able to deliver a product to a homeowner, simply because of the supply chain,” said Scott Burrer, general manager at Sullivan Brothers Builders. “Buying a house is an emotional process. For most people, it’s their biggest investment in life. We have to look at these folks and say, ‘I know I told you we were going to turn over your keys in May, but now I don’t know when your home is going to be complete.’”
Paul Miller, owner of Gr8 Plate Hospitality, which operates nine restaurants in Houston, including The Union Kitchen and Jax Grill, said his profitability has been affected by a price increase in supplies such as plastic to-go bags and plasticware, up about 10 to 15 percent from the winter storm.
The freeze wrought more havoc and choked more supply than hurricanes Katrina, Harvey and Laura, according to Kristen Hays, Global Market Lead of Polymers at S&P Global Platts. The frigid weather not only hit the Gulf Coast from Texas to Mississippi, but also inland from North Texas to Kentucky.
Even the price of gasoline has been affected by the winter storm, and goes beyond the Gulf Coast.
Held unusually low by sinking demand during the pandemic, gasoline prices began to steadily rise this year, spurred by a rally in crude and the start of summer driving season.
Last month’s shutdown of refineries further increased prices, up about 15 to 20 cents per gallon nationally, with Arizona seeing some of the largest Texas-related increases, according to fuel-tracking website GasBuddy.
The average price of gasoline in Arizona soared by about 70 cents to $3.09 per gallon from $2.41 before the storm, according to GasBuddy.
“The jump in prices from what happened in Texas is ridiculous,” said Christopher Morgan, a 29-year-old pharmaceutical sales representative in Phoenix. “It affected my pocketbook and I don’t even live there.”
An estimated 75 to 80 million barrels of crude were not processed during and after the freeze, reducing gasoline output by 35 to 40 million barrels, S&P Global Platts Analytics said.
More warning to the power plants, as given when a hurricane threatens, could have helped alleviate some of the shortages, experts say.
“The Texas freeze was unusual in that facilities shut down with much less or in some cases no warning, subsequently requiring significantly more time, caution, and care on the part of companies to restart their facilities,” said Susan Grissom, chief industry analyst at American Fuel and Petrochemical Manufacturers.
Adding more power generation to the grid would also help matters, according to Bill Hyde, executive director, olefins and elastomers, at IHS Markit.
“A more robust power grid wouldn’t have prevented all of the damage,” Hyde said, “but it would have helped.”
“(W)hat happened in Texas is ridiculous. It affected my pocketbook and I don’t even live there.” Christopher Morgan, a 29-year-old pharmaceutical sales representative in Phoenix, who saw a huge leap in gas prices