Harvey storm damage extends beyond Texas but not long term - analysts
Chemical plants, refineries and critical logistics are working diligently to restart more than a week after 50 plus inches of rain from Hurricane Harvey left much of the U.S. manufacturing base underwater in Houston and South Texas. While the economy is expected to take a temporary beating, the challenges will be short lived as Texas is expected to recover quickly.
“Hurricane Harvey is a record breaking storm with unprecedented impacts on the people and property along the U.S. Gulf Coast due to extreme flooding,” said Cal Dooley, President and CEO of the American Chemistry Council (ACC).
According to the Federal Emergency Management Administration (FEMA), the storm is responsible for the worst flooding in U.S. history, and is the costliest natural disaster in U.S. history.
Early estimates put the damage at $190 billion, more than Hurricane Katrina in 2005 and Hurricane Sandy in 2012 combined, according to AccuWeather.
Harvey was a Category 4 storm when it made landfall in Corpus Christi, Texas on August 25. It then went on to dump record quantities of rain along the coast and into Louisiana before dissipating nine days later.
The University of Wisconsin’s Space Science and Engineering Center has determined that Harvey is a 1-in-1,000-year flood event that has overwhelmed an enormous section of Southeast Texas equivalent in size to the state of New Jersey.
University of Wisconsin researcher Shane Hubbard calculated the footprint of Hurricane Harvey's historic flood.
Image: Space Science and Engineering Center, University of Wisconsin-Madison
The U.S. Gulf is the nucleus of the North American petrochemical industry, so outages in this region impact supply chains across the U.S.
Texas and Louisiana together produce chemicals used in everything from toys to automobiles including the packaging and boxes used to ship these products to other areas, and the fuel for the trucks and ships to deliver the products.
With $129 billion in shipments, Texas is the largest chemical producing state and Louisiana (with $51 billion in shipments) is the 4th largest chemical producing state.
Within those states, the areas directly affected by Harvey account for $155 billion in shipments (around one-fifth of total chemical industry shipments in the United States).
Texas Governor Greg Abbot has requested $125 billion in federal support. The ACC estimates that Harvey damage to the energy sector is upwards of $40 billion to $125 billion.
U.S. ethylene and polyethylene assets
U.S. chlor-alkali and vinyl assets
Images: Vertical Research
The overall U.S. economy will take a hit in third quarter from the impact of the storm as Houston is the fourth largest city in the U.S. and a major engine to the overall U.S. economy. However, activity is expected to recover in the fourth quarter from construction activity, according to analysts.
“We would expect earnings during the third quarter to trend lower on weaker volumes, followed by potential for partial recovery in fourth quarter, aided by higher selling prices,” said Kevin McCarthy, analyst at Vertical Research. “As disruptive as it is, even Hurricane Harvey will prove to be a transitory event as it relates to chemical stocks.”
It may take several weeks to reach pre-hurricane production levels in the flooded areas of Texas and Louisiana, the ACC said.
More than half of total U.S. ethylene capacity remained offline this week and 36% of polyethylene (PE) capacity will remain offline for an uncertain period, McCarthy said.
Texas accounts for about 70% of U.S. production of ethylene, and Louisiana is responsible for about 20%, McCarthy added.
Seventeen crackers with a combined capacity of 11.2 million tonnes were shut down following the storm, while other olefin units ran at reduced rates, according to chemical information provider ICIS.
Other chemical units including those that produce methanol, polyvinyl chloride, acrylic acid, cumene, ethylene oxide, styrene, benzene and more shut down to prepare for Harvey.
Restarts were delayed as the availability of raw materials, power, water and the critical logistics including ports and railroads are fully restored.
“The storm was wreaking havoc with personnel, chemical production assets, access to electric power as well as logistics, rails, ports, barges and ocean freight,” McCarthy wrote in an August 28th note. “Procurement of natural gas liquid (NGL) feedstock and other pipeline-related considerations remains of concern.”
The refineries and chemical plants that escaped serious damage will have limited rates as logistics to receive feedstock and move output are limited, and several plants producing feedstock remain shut down.
“We are not able to get raw materials to produce our products, and we make many of our own raw materials,” a chemical engineer at a Houston manufacturer told Petrochemical Update.
The closure of ports, rails and highways in Texas mean that raw materials can’t get in to produce the specialty chemicals, and finished product can’t get out.
Several rail lines remain limited in Texas after Harvey damage. Image: Christian Long
Transportation could be snarled in Texas for days with ports, rail and highways closed or underwater following the flood caused by Hurricane Harvey.
Union Pacific, BNSF and Kansas City Southern Railroad continued to assess damage from Harvey with service only partially restored.
Flooded rail tracks must be inspected and repaired to make sure they can carry the heavy loads and flooded rail cars repair.
"Ordering a new rail car is taking forever," an engineer told Petrochemical Update. "Rail issues may take longer than restarting the plants."
Traffic has now been restored in the Houston Ship Channel at both Port of Houston’s container terminals, though limited.
"Although vessel movements remain restricted because of swift current in the channel from continued significant inflows, it is important to resume landside receipt and delivery of containers at our terminals in advance of commencement of vessel operations,” said Port Commission Chairman Janiece Longoria in a press release.
The Port of Houston is the largest U.S. port for foreign waterborne tonnage and an essential economic engine for the Houston region, the state of Texas, and the nation. It supports economic activity totaling almost $265 billion in Texas, 16% percent of Texas’ total gross domestic product and more than $617 billion in economic impact across the nation.
Texas ports in Freeport, Texas City, Galveston, Corpus Christi and Point Comfort were reopened with draft limits, while Beaumont, Port Arthur and Orange ports remained closed at press time.
Image: Christian Long
Some analysts said that the rebuilding efforts will help to recover the economic losses inflicted by Harvey.
Bill Gilmer, director of the University of Houston’s Institute for Regional Forecasting predicts there will be 18 months of work for Houston alone.
“We are on the brink of a short but intense boom led by reconstruction. After every storm comes the clean-up and repair, and we will see soaring sales of automobiles, wallboard, carpet, and furniture,” Gilmer said.
“The massive storm-driven losses of capital are behind us, and we start generating storm-related income and employment now.”
Early estimates are that Harvey floodwaters damaged more than 50,000 homes and as many as 500,000 automobiles in Texas.
Image: John Doyle
Roofers, electricians, carpenters, construction workers and do-it-yourselfers are already busy repairing damaged homes.
Some places will be uninhabitable for several months.
Image: John Doyle
The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals, including plastics, insulation, paints and coatings, adhesives and more.
“The big pieces of Houston’s economic base – drilling and exploration, Ship Channel industries, medicine, space – sustained relatively little damage, and remain firmly in place to keep the economy moving forward,” Gilmer said.
By Heather Doyle