Largest U.S. refiner shutting as Harvey hits fuel-making hub

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Harvey’s second landfall, hitting southwest Louisiana near the Texas border, expanded the growing list of damaged oil refineries, shutting down two key plants, including America’s largest.

The latest hit list potentially reduces U.S. fuel-making capacity to the lowest since 2008, following Hurricane Ike. Motiva Enterprises’s Port Arthur facility in Texas, the biggest U.S. refinery, is shutting because of severe flooding, said a person with knowledge of the operations. Total SA’s refinery in Port Arthur is out with a power loss, a person familiar with that plant said. Those plants are less than 50 miles (80 kilometers) from the tropical storm’s 4 a.m. Wednesday landfall just west of Cameron, Louisiana.

The two refineries join more than a dozen others with a combined ability to produce more than 4 million barrels a day, or about 23 percent of U.S. capacity, that are at least partially offline. Gasoline futures are at the highest in two years, and the fuel’s premium to crude is at a 16-month high.

“These closures are already impacting markets with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply,” Sandy Fielden, director of research commodities and energy at Morningstar Commodities Research, said in an emailed note.

The capacity for the Port Arthur plant run by Motiva, owned by Saudi Arabia’s national oil company, is 605,000 barrels a day, while the plant run by Paris-based Total has a capacity of 225,000 barrels a day, according to data compiled by Bloomberg.

At the same time, Exxon Mobil is in the process of a “systematic” shutdown of several of its units at Beaumont, Texas, just north of Port Arthur, while a majority of operations at its Baytown, Texas, complex have been shut, Charlotte Huffaker, a company spokeswoman, said in an email Wednesday.

Harvey, which has been devastating the Houston area with flooding rains, will be more costly than Hurricane Katrina, which killed at least 1,800 people and destroyed New Orleans in 2005, according to Joel Myers, founder of AccuWeather Inc. in State College, Pa. He estimated it could affect 1 percent of the U.S. gross domestic product, eventually costing about $160 billion.

Some of the first refineries to close were in Corpus Christi, near where Harvey initially made landfall as a Category 4 hurricane on Friday. The winds quickly slowed to a tropical storm afterward, and the danger shifted to flooding as the storm pumped more than 50 inches of rain over parts of Houston.

Now that Harvey has moved east from south Texas, Valero Energy Corp., Citgo Petroleum Corp. and Flint Hills Resources LLC are preparing to restart those Corpus Christi refineries, according to regulatory filings and people familiar who asked not to be identified because the plans aren’t public. Those plants, and another that Valero shut in nearby Three Rivers, account for more than 930,000 barrels a day or refining capacity.

U.S. plants processed about 17.5 million barrels of oil a day the week ending August 18. A return to that level won’t be quick or easy. Even as plants recover, the restarts will be delayed by distribution issues and crude supply, compounded by port closures cutting off imports, Fielden said. The Port of Houston has no timeline for reopening, while Corpus Christi’s port is expected to resume normal operations by Sept. 4.

The affected refineries imported about 1.6 million barrels of oil a day last year, including 410,000 from Mexico, 380,000 from Saudi Arabia and 340,000 from Venezuela, according to data from the Energy Information Administration.

Colonial Pipeline, the main conduit for gasoline and diesel from the Gulf Coast to the eastern U.S., is already operating at reduced rates because it is not receiving supply from the Houston area. The loss of refineries around Port Arthur, Texas, leaves only Louisiana and Mississippi refineries supplying fuel to New York and other demand centers.

Gasoline futures on the New York Mercantile Exchange rose 6.4 percent to $1.8965 a gallon at 10:40 a.m. in New York. That’s up almost 17 percent from settlement a week ago. The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, climbed as much as 15 percent to $24 a barrel.

--With assistance from Aaron Clark and Jessica Summers

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