Extreme Weather Disrupts U.S. Oil And Gas Sector

With three months left in the year, the U.S. has already set a record for the most billion-dollar weather events in one year and, globally, the hottest summer on record. This kind of extreme weather plays a significant part in the volatility in the oil and gas sector, resulting in prices, supply and demand often swinging drastically from hour to hour. While shorter than recessions, weather events have super-sized effects on the entire oil and gas supply chain.

Hurricanes

Many kinds of weather can affect supply, from blizzards and ice storms to tornadoes and flooding, but most notable are tropical systems. Nearly half of the total petroleum refinery capacity and 51% of the total natural gas processing plant capacity in the United States is along the Gulf Coast, according to the U.S. Energy Information Administration (EIA). This area is also historically in the path of many tropical storms and hurricanes. These storms don’t just impact land operations but also up to hundreds of miles out to sea, where extreme storms can disrupt everything from shipping routes to drilling platforms. According to the EIA, a “high impact” hurricane that disrupts Gulf of Mexico crude production by 80pc could increase monthly average retail gasoline prices by up to 30¢/USG.

This year’s Hurricane Idalia put pressure on the Gulf operations, with three platforms evacuating employees and traders watching the impending storm drive oil prices up in the days before landfall. In the past, other notable storms have impacted the industry, including Hurricane Zeta in 2021, which drove an 8-million-barrel drop in regional oil stocks that affected the broader U.S. supply. In response to the growing threats from these extreme storms, many refineries have hardened their plants and taken steps to reduce flooding. They’ve also worked to improve communications between retailers and suppliers to anticipate disruptions, but storms still impact production.

Extreme Temperatures

We are already seeing cooler temperatures as we move into autumn, which is a relief from the months of unrelenting high temperatures. Extreme temperatures –hot or cold— have a significant impact beyond consumer demand. Refineries, which are typically designed to operate between 32 and 95 degrees Fahrenheit, can experience equipment malfunctions, reduce production capacity and create unsafe working environments which can further delay operations under extreme heat conditions.

Although tropical systems are typically associated with oil and gas disruption, extreme temperatures can cause more production loss. For example, in February 2021, frigid temperatures shut down more U.S. refinery capacity than Hurricane Harvey. The extended cold spell caused 5.6 million b/d of outages along the U.S. Gulf Coast and Midwest compared to Hurricane Harvey, reducing production of nearly 4 million barrels of oil per day.

The bitter cold brought about by the 2021 Polar Vortex, was a stark reminder of the cascading effect extremely low temperatures have on the oil and gas industry. The storm caused wellhead freeze-offs and power outages that debilitated gas producers, leading to a shortage of gas when demand was spiking. Gas shortages combined with iced-down processing units led to individual unit outages and entire closures at 25 refineries in Texas, New Mexico, Oklahoma, Louisiana and Tennessee.

Freezing temperatures can cause malfunctions that might require a shutdown, such as flow control equipment failure or frozen product within the piping system. It can also create a hazardous situation when the weather warms up. When the temperature drops, the liquid freezes in the pipe and expands. This expansion can cause the pipe to crack, and once the temperature rises, the pipe will start to leak, creating a potential fire hazard.

And even though we have moved beyond extreme high temperatures for now, it is important to note that extreme heat impacts a refinery’s ability to run at full capacity and can limit the electricity supply refiners need to run their operations.

For example, this year the utilization rate in the Gulf Coast fell in June and July, with several sizeable outages in the region in July and August.

The Increase of Extreme Weather Events

As most research points to extreme weather events increasing in frequency and intensity, the oil and gas industry is already improving its preparation and response. The introduction of new standards, processes and hardened equipment indicates the industry is preparing for current weather impact and future climate changes.

One area that can further build resilience is by tapping into integrated real-time weather insights. From optimizing shipping routes for vessels carrying natural gas and petroleum to protecting employees on offshore platforms, or proactively planning for unavoidable weather events, weather intelligence can enhance efficiencies and support safe operations. Further when these weather insights, such as what regions, terminals, and refineries are likely to be affected, are coupled with fuel demand data, supply chain players can plan ahead to make strategic supply, pricing, and purchasing decisions.

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