A chain is only as strong as its weakest link, and in the month since Hurricane Harvey savaged the Gulf Coast from Corpus Christi, Texas, to Baton Rouge, La., the initial lesson seems to be that upstream and downstream came through fairly well, but the midstream suffered.
The pleasant surprise was how well refineries and chemical plants handled the flooding. With the notable exception of a peroxides plant northeast of
The Houston Ship Channel was not badly hit, but the disruption of the storm lingered in road, rail, and marine transport of fuels and chemicals for weeks.
The essential strategic question that midstream operators are now coming to grips with is whether to invest in hardening their assets, as has worked for processing plants, or to take an operational approach to the next big storm. The latter could include:
- Designated alternate pipeline routes that would be activated in advance of a storm;
- New storage facilities to stage inventory at key sites away from expected flood areas; or
- Pre-arranged plans with shippers and customers to build or reduce volumes out of the ordinary.
The new buzz phrase is “dis-economy of scale.”
As one midstream portfolio manager told Hart Energy: “We have focused on concentrating assets in the Gulf Coast for sound operational and investment reasons. But there are risks to putting all your eggs in one basket. Whether operators decide to reinforce their assets, or to work around possible weather-related disruptions is up to each individual operator. It will cost some money. The decision is how much and what makes the most sense.”
Most of the industry reporting on the storm’s impact has concentrated on production, particularly offshore, and also on refining and chemical production. As much as 50% of processing in the region was knocked offline by the storm, but by a week later that was down to 10%. With upstream and downstream seemingly well-secured, attention has turned to midstream.
“When sorting through the lessons learned from
In terms of pipeline and storage outages, Viswanath noted, “many of the country’s large-diameter pipelines originate out of Texas and Louisiana. In fact, the EIA [U.S. Energy Information Administration] notes that more than 20 of the U.S. major interstate pipelines originate in the Southwest Region. Before shale, these states had exported roughly 45% of their production to major markets in the Southeast,
That underscores the strategic risk of over-concentration of assets in one vulnerable region. With shale gas basins around the country, some analysts see the gas transmission discussion evolving along the lines of electrical generation and transmission in that capital favors concentration of assets, but reliability favors distributed facilities.
Increase automation also is under discussion. Viswanath recalled that Tres Palacios, a gas-storage facility in Matagorda County, Texas, issued a force majeure, shut in and evacuated personnel from the 34.8-Bcf capacity facility to comply with the mandatory evacuation order for the entire county. The question becomes, to what extent can minimal operations be continued safely under emergency conditions.
In contrast to the big processing plants, smaller, more scattered gas-processing facilities proved more difficult to protect from flooding. For example, Kinder Morgan’s Natural Gas Pipeline Co. of America declared a force majeure on the Louisiana Line upstream of Compressor Station 342, in Cameron Parish, La.
“Flooding and power outages impacted a significant proportion of natural gas processing capacity,” said Viswanath. “Indeed at the height of the storm-related outages, the region was processing just half of the pre-storm volumes. Enterprise Product Partners’ Mont Belvieu complex witnessed significant facility loss during the storm, with half of the facilities offline: four of Enterprise’s eight NGL fractionators and three of its six propylene fractionators. Likewise ONEOK, Targa, and Energy Transfer announced similar disruptions.”