Hurricane Harvey to cause ‘unprecedented’ disruption of ‘essential’ chemicals
With most people focused on the physical damage caused by Hurricane Harvey, few are aware of just how damaging the Texas storm was to the national and global economies.
Most people know that Texas is the nation’s oil and gas capital, the bulk of our oil refineries are there. In fact, Texas is home to the country’s biggest refiner, which is now shuttered due to storm damage and may be offline for up to two weeks. We’re already starting to see gas prices rise and expect them to continue rising for a few more days, at least.
But Texas is also home to more than 60 percent of the U.S.’s production capacity for ethylene – one of the most important chemical building blocks for American manufacturers. It has been taken offline.
As reported by Bloomberg, here’s what makes ethylene so important:
As it turns out, this colorless, flammable gas is arguably the most important petrochemical on the planet — and much of it comes from the hurricane-stricken Gulf Coast. Ethylene is one of the big reasons the damage wrought by Hurricane Harvey in the chemical communities along the Gulf of Mexico is likely to ripple through U.S. manufacturing of essential items from milk jugs to mattresses.
“Ethylene really is the major petrochemical that impacts the entire industry,” said Chirag Kothari, an analyst at consultant Nexant.
Texas alone produces nearly three-quarters of the country’s supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Wal-Mart Stores Inc.
Ethylene occurs naturally — it’s the gas given off by fruit as it ripens. But it also lies at the heart of the $3.5 trillion global chemical industry, with factories pumping out 146 million tons last year, Kothari said Thursday.
Full production capacity may not return until November.
As for oil and gas, CNBC notes:
Refiners that took the brunt of Harvey’s first landfall near Corpus Christi on Friday got the restart process underway on Wednesday. However, about 20 to 25 percent of U.S. refining capacity remains offline, creating problems in the pipeline systems that move gasoline and other fuel around the east half of the U.S.
Pipeline operators have been forced to throttle back or suspend flows of gasoline and other petroleum products.
“The major refined product pipelines out of Houston are mostly shut because there is no gasoline and diesel to pump,” said Andy Lipow, president of Lipow Oil Associates.
Why it’s on our radar: Like chemical manufacturers, refinery operators cannot say at present when they will be back online because they can’t predict when Harvey’s historic floodwaters will recede. But this disruption will be felt throughout the United States, as every business and manufacturing sector relies on one of these two commodities to remain in operation. Harvey’s economic impact across the U.S. economy is going to be incalculable for months to come, but we expect it to be massive.
These outages will first affect personal incomes, hitting them the hardest. We are not expecting long-term outages so we’re not expecting long-term social unrest that stems from widespread unemployment and lack of economic opportunity. But you can begin to see not only how important Texas is to the nation’s economy, but how widespread the economic and social pain will be if, say, Texas’ petrochemical industries were taken offline for an extended period of time due to terrorism, war, or a major natural disaster.