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Op-eds & Essays Climate Change

Storm Harvey raises awkward questions over US energy ambitions

This article was originally published in the Financial Times.

The desolation visited by tropical storm Harvey on the US Gulf Coast, the heart of the nation’s oil and gas industry, summons memories of Hurricane Katrina and the devastation it brought to New Orleans and the region 12 years ago. Like Katrina, Harvey shows how exposed the US energy sector remains to the risk of weather disruptions. As global warming raises the threat of catastrophic weather events, this vulnerability may be rising.

On the surface, the US energy situation couldn’t be more different today than it was in 2005. Since then, the shale revolution has unleashed the fastest production boom in oil history, turning the US from the largest importer into the leading exporter of refined products, and into a fully fledged energy superpower. As revolutions often do, shale impacts have spread worldwide. Oil prices have plunged as a new feeling of abundance has replaced old scarcity fears. Global oil inventories have soared. To top it all, US natural gas and renewable energy supplies have also surged.

While it is too early to fully assess the full scope of Harvey’s damage, it is already becoming clear that far from getting stronger, the country’s energy resilience may in fact in some ways be downgraded.

The concentration of oil and gas infrastructure in flood-exposed parts of the US Gulf Coast has also reached unprecedented levels over the past decade. Gulf crude production for, example, has more than doubled since 2005, leading a 75 per cent nationwide increase, and now accounts for almost two-thirds of total US crude production, up from 54 per cent in 2005.

With domestic consumption down slightly and exports surging, US oil import dependency plunged to a mere 25 per cent last year from as high as 60 per cent in 2005. On paper, that sounds like a big step for energy security. But the flipside is higher reliance on potentially vulnerable Gulf Coast infrastructure. On the downstream side, operating refining capacity in coastal Texas and Louisiana jumped by almost a quarter from about 7m barrels per day on the eve of Katrina to 9.7 bpd at the latest count, even as capacity elsewhere edged down, lifting the Gulf’s share of US refining activity to nearly half of the total.

The same dependency on the Gulf applies for logistics. Rising exports and falling imports turned the US into a net exporter of gasoline (including both finished product and blending components) last year. Roughly 90 per cent of gross exports came from the Gulf. The region leads the US surge in virtually all other types of oil exports by a wide margin: as of 2016, the Gulf accounted for 54 per cent of US exports of crude, 68 per cent of natural gas liquids, 86 per cent of diesel and 75 per cent of jet fuel — a much higher share of a much higher total.

One of the unexpected consequences of the US shale boom is the rising co-vulnerability of its increasingly complex and integrated energy system. Even inland plays such as the Permian, the shale industry’s star performer, seemingly out of harm’s way, have become exposed to the risk of weather disruptions at coastal refineries, pipelines and export facilities on which they depend for market access.

Despite the steep improvement in US energy self-reliance of the past decade, US-bound oil products are now being rushed from around the world to make up for the supply loss caused by Harvey, The latest devastation is a powerful reminder that no country, no matter how large a producer it may be, is an energy island.

And US strategic oil reserves may prove of little direct use if they cannot easily be accessed or used in the event of a domestic disruption, as happened during Katrina.

As calls mount in Washington for cutting the size of the reserves on account of rising US oil production, and for using the proceeds of a sale to plug budget holes elsewhere, Harvey reminds us of the continued, if not growing, uncertainty of all oil production. While market changes certainly warrant a thorough re-examination of precautionary measures designed decades ago, simply resorting to a hasty fire sale of “excess” stocks without further study would be decidedly ill-advised.


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Op-eds & Essays Climate Change

Storm Harvey raises awkward questions over US energy ambitions