Risks to the Petrochemical Industry Along the Houston Shop Channel

Risks to the Petrochemical Industry Along the Houston Shop Channel

Executive Summary

  • Materials produced at or moving through the Houston Ship Channel are subject to a heightened risk of transportation disruptions due to geographic concentration that can reduce production costs, but also significantly increase the number of facilities that may ultimately be affected by an incident that begins at a single site. 
  • Proximity to other high-risk sites can affect production due to shelter-in-place orders (toxic atmospheric pollution), spreading fires and firefighting efforts, as well as accidents, damage, or other disruptions to shared infrastructure.
  • In addition, flash flooding in the area can rapidly impact transportation for up to 24-48 hours, halt production, and cause property damage, as evidenced by Hurricane Harvey and Tropical Storm Imelda. While hurricanes rarely hit the channel directly, precautionary measures involving 24-48 hour operational halts are typical at least once annually. 
  • Water-dependent transportation in the ship channel can also function as a bottleneck where disruptions can ripple across supply chains. The majority of production facilities situated on the channel depends on and typically benefits from direct waterway access for bulk material shipping, and outbound shipments are vulnerable to commonplace short-term delivery disruptions. 
  • While the benefits of proximity are clear for producers in the area, supply chain managers who depend on materials from sites along the ship channel should be mindful of the heightened exposure to transportation disruption risks, create visibility on supply chain entities operating in the area, and monitor real-time events that can cause disruptions.

Introduction

The greater Houston area is a critical hub in the production of a wide variety of industrial chemicals and oil materials. In total, the area is responsible for 38.7% of polyethylene production, 35.9% of polyvinyl chloride production, and 48.4% of polypropylene production in the United States and is integral to Texas’s contribution to 31% of total US oil refining capacity, 24% of natural gas production, and 37% of US total crude oil extraction. 

Chemical and energy facilities present in the area benefit from the synergies and cost savings of regional proximity in an industrial megaregion spanning from Corpus Christi, Texas to Pascagoula, Mississippi. Industrial facilities are most concentrated in the 9-county Houston area and particularly along the ship channel, where a majority of the refining and shipping activity for the above industries takes place. Direct access to the Houston Ship Channel allows firms time and cost savings by enabling them to conduct their own barge and tankship loading operations on-site without intermediaries. 

While the benefits of proximity are clear for producers in the area, supply chain managers who depend on materials from sites along the ship channel should be mindful of the heightened exposure to transportation disruption risks. While most facilities in the region work diligently to uphold a culture of Health, Safety, Security, and Environment (HSSE) awareness, this cannot mitigate risks entirely. The contributing factors to this elevated transportation disruption risk profile can be summarized into 3 categories: a very high geographic concentration of volatile, combustible, and otherwise hazardous materials; inherent regional weather risks; and bottlenecked transportation routes that depend on waterway access. 

These circumstances were best exemplified by the fire and chemical spill at Intercontinental Container Terminals in Deer Park earlier in 2019 that resulted in a multi-day closure of the Houston Ship Channel, as well as previous instances of hurricanes making landfall in the region. 

Geographic concentration of dangerous goods facilities

The following map provides an illustration of key facilities along the Houston Ship Channel that are critical for the petrochemical industry and its logistic functions. Of the 10 exemplary facilities, 2 are petrochemical, or explicitly involving production and/or shipping of chemicals and oil, 4 are dedicated to purely chemical production, and 1 is dedicated purely to oil production. Furthermore, there are 3 major cargo terminals providing different types of maritime goods shipping. There is the Intercontinental Terminals Company (ITC) terminal in Deer Park, which specializes in fuel and bunker oil as well as distillates and other chemicals, the Manchester break bulk terminal, and the Bayport Container Terminal, which also ships finished vehicles.

Source: Everstream Analytics 

When the fire and chemical spill occurred at the Intercontinental Terminals Company in March 2019, it affected all facilities on the map except for the Bayport Container Terminal and the ExxonMobil facility in Baytown. The case study below demonstrates how an incident at a single facility disrupted transportation infrastructure and operations for the majority of facilities located on the channel. 

Case Study: Fire at Intercontinental Terminals Company 

The Intercontinental Terminals Company (ITC) facility is located at 1943 Independence Parkway in Deer Park, Texas. Situated at milepoint 47 on the Houston Ship Channel, it is comprised of 242 chemical storage tanks with a total capacity of over 13 million barrels or 546 trillion gallons. The facility stores a wide range of petrochemical liquids and gases, in addition to fuel oil, bunker oil, distillates, and other chemicals. It is connected to transportation infrastructure by ship (5 docks), barge (10 docks), rail, cargo truck, tanker truck, and multiple pipelines. 

On March 17, 2019 at 10:22, a fire broke out in Tank 80-8 due to a leak in the tank’s manifold. In total, 11 tanks containing gasoline blends and components such as pyrolysis gasoline, naphtha, and base oil were affected by the fire. The fire continued for nearly 65 hours until firefighters were able to contain the blaze at 03:00 on March 20. On March 22, a containment wall at the facility was breached, allowing some of the liquid to flow into the Tucker Bayou and contaminate the Houston Ship Channel. Additional contamination was created by firefighting efforts: the foam used in extinguishing included a chemical called polyfluoroalkyl, which is known to be toxic, soluble in water, and unable to degrade. In total, 500,000 gallons of material were spilled and multiple dangerous spikes in hazardous air particles were reported, leading to a wave of infrastructural closures and operational disruptions. 

Infrastructural Closures

In response to the crisis, Channel navigation activity was regulated and shelter-in-place orders were issued based on operational safety risks identified throughout the course of the incident. After the containment wall was breached at the ITC facility on March 22, spilling into the ship channel, the Coast Guard fully closed the waterway from the Tucker Bayou eastwards to Light 116 near the BOSTCO barge dock. 54 vessels were in transit in the affected area at the time that closure orders were given, including dozens of vessels stranded further inland from the Tucker Bayou in an area known as the Turning Basin. 
On March 25, waterway traffic was partially reopened, allowing one-way daytime traffic of vessels in 30 to 60 minute intervals (as opposed to a typical interval of 5 minutes), gradually providing relief for the most urgent shipments. 

Environmental & Safety Restrictions
 
Residents and workers in the area noted large plumes of smoke rising from the site which were determined to contain benzene, a petroleum derivative used in the production of styrofoam, synthetic fibers, rubber, and pesticides, among other applications. Depending on the level of concentration, atmospheric benzene exposure can be carcinogenic and can additionally result in symptoms impacting the neurological, gastrointestinal, pulmonary, and hematologic systems. 
 
After detecting elevated atmospheric benzene levels (>180 parts per billion) which pose an immediate threat to human health, a shelter-in-place warning was issued from 5:30AM to 2:00PM on March 21, restricting the movement of all residents and facility personnel from entering or leaving buildings in that area.
 
In summation, the incident created massive supply disruptions for solvents, methanol, and other chemical products from the gulf region, and resulted in transportation disruptions for those operating in the region for multiple days.

Inherent Regional Weather Risks

Vessels traveling in the Houston area are at risk of 2 forms of weather-related disruptions: hurricanes, which occur less than once per year but often cause multi-day delays; and fog, which is more common but causes only temporary traffic suspensions. 

Given the area’s location in the Gulf of Mexico and a high frequency floodplain, it is especially prone to hurricanes, having been impacted by events ranging from heavy rain to severe storm-related damage 5 times between 2014 and 2017. Two notable examples monitored and analyzed by Resilience360 include Hurricane Harvey of 2017 and Tropical Storm Imelda of 2019.

Hurricane Harvey proved to be a considerably disruptive weather event in the western Gulf from its formation on Aug 17, 2017 to beyond its dissipation on Sept 2, 2017. Petrochemical facilities in the area started reporting outages from Aug 25, including operational suspensions at 10 refineries as of Aug 27, with the Houston Ship Channel being closed until Sept 4. Road freight shipping saw a drop of 80% in the lead-up to the storm’s arrival. Rail traffic came to a standstill by Aug 28, with Union Pacific (the primary operator in the 9-county area) shutting down all freight traffic from Brownsville to Lake Charles, followed by BNSF for the 9-county area and KCS through the border. Port of Houston-bound vessels saw diversions, while Beaumont and Port Arthur as well as Louisiana ports remained open. 

The storm disrupted 18% of national hydrocarbon production and 33% of national chemical production (comprising up to 68 types of chemicals) and 39% of the area’s water-dependent chemical trade halted, with 8.1% of natural gas production remaining offline through Sept 4, with some systems restarting at several refineries from Aug 28 through to Sept 14. This resulted in 12 chemical companies declaring force majeure in the area starting from Sept 5. 

The more recent Tropical Storm Imelda, while not as severe as Harvey, was also disruptive from its formation on Sept 14, 2019 to beyond its dissipation on Sept 21, 2019. Several facilities in the area were impacted due to flooding, including those in La Porte (LyondellBasell), Chocolate Bayou (Ineos), Beaumont (ExxonMobil and Phillips66), as well as residual power outages (Arkema). Furthermore, the Channel along the Neches River was closed on Sept 19-20 as well as the Beaumont Channel on Sept 19, and ground channels were halted as far as southern Georgia on Sept 20, exacerbated by the shuttering of the Port of Houston’s gates on Sept 19 (which reopened on Sept 21). Furthermore, 48-72 hour rail delays were also reported. 

October through March is peak fog season due to cooling Gulf temperatures, as fog is rarely seen above 20 Celsius. Since 2011, the Houston Ship Channel has closed for an average of 424 hours per year due to fog (generally in 6-7 hour increments). 

Rainfall has been described as frequent in the spring through late summer/early fall, where severe weather events are starting to see 30 to 50 inches of rain. These events typically cause a 24-48 hour shutdown of the port due to unnavigable tides. Sources indicate that the channel faced 3 precautionary shutdown events of this nature for hurricane safety in 2018, an unusually high frequency.  

Waterway Access Dependency a Transportation Bottleneck

The location of a particular site within the channel affects its exposure to transportation risks. The further inland from the Gulf that a facility is, the more likely it is to be affected by a disruptive transportation incident. Additionally, the closer a facility is to other facilities with volatile, combustible, and otherwise hazardous materials, the more likely it is to be affected by a fire, explosion, or shelter-in-place order and their resulting infrastructural closures. 

The Houston Ship Channel waterway is the most central part of the area’s transportation ecosystem, and it is also the most vulnerable to disruption. Since 2011, vessel traffic accidents and spills have caused an average of 76 hours of waterway closure. This could result from a facility accident such as the ITC Deer Park spill, or a vessel accident such as the gasoline barge collision near Bayport on May 11-12 that spilled 11,280 barrels of gas into the channel, inhibiting navigation until 12:00 on May 15. When such incidents take place, railway closures, roadway closures, and shelter-in-place orders may block inbound and outbound shipments from proceeding. This may be exacerbated when a cleanup after an incident is necessary.  

On an average day, 70 tankship and cargo vessels, and 400 towing vessels move through the channel. As demonstrated in the aftermath of the ITC fire after the channel was partially reopened, only 29 vessels were cleared per day, and only 11 of those were able to pass the Tucker Bayou area where the ITC spill took place. By the time the channel was partially reopened, approximately 100 vessels were waiting offshore for clearance. Vessels that waited for the channel to reopen faced severe disruptions to their delivery schedules, while shipments on vessels ordered to skip the port were either cancelled or forced to complete their delivery via ground from the next port of call. Fully unrestricted traffic was not reinstated until 32 days after the initial closure, on April 23.

Because production facilities in the area frequently source products and materials from one another, a transportation disruption can send ripple effects throughout the region. However, the most significant impacts are likely to be felt further away by customers who are expecting inbound materials from the Houston region or have cargo that is transiting the area.  

Recommendations 

The events, man-made or natural, that have interrupted production and navigation along the Houston Ship Channel can be concerning for those in the energy and petrochemical industries. To address future risks, supply chain managers that source material from the Houston Ship Channel should consider adopting the following risk-mitigating steps: 

  • Create better visibility through mapping of all upstream suppliers: The ability to maintain visibility of all upstream suppliers allows supply chain managers to quickly assess potential ripple effects within the manufacturing network, cascade communication upon learning of a potentially disruptive event, and trigger business continuity plans for affected entities in a timely manner.
  • Ensure that suppliers in the Houston Ship Channel area are not single-sourced: Where possible, supply chain managers should consider dual-sourcing strategies and identify alternative suppliers to minimize impact on production schedules. Having alternative suppliers in place can ensure that production schedules not held up indefinitely due to a single event.
  • Verify that alternative suppliers are able to deliver increased volumes: Understanding the capabilities and capacities of alternative suppliers, and ensuring the required contractual agreements are in place, are critical in ensuring agility when disruptions occur. Established communication channels in working with alternative suppliers can also help speed up processes during a disruption. 
  • Monitor vessels for delays in arrival times: Vessels operating in the area can experience delayed ETAs due to fog, hurricanes, or other waterway closures. Natural disasters can be predicted at least 24 to 48 hours before their occurrence, and conservative estimates forecast a resumption of services 24 to 48 hours after an event has passed. Using vessel monitoring services, in combination with near real-time event monitoring services, can provide a comprehensive understanding of vessel, and subsequently cargo, delays due to unfolding issues. 
  • Follow weather forecasts and plan transportation capacity ahead: Customers are encouraged to follow the North Atlantic hurricane season, plan cargo shipping intended for rail ahead, and consider backup capacity where possible. While the impact of some weather events, such as hurricanes, are not known until their landfall, the earliest observation and preparation can provide the ability to adjust to changing conditions before a storm hits the area.

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