Back-to-Back Storms Disrupt Business, Logistics, and Port Operations along the Gulf of MexicoEverstream Team
- Tropical Cyclone Marco made landfall near the mouth of the Mississippi River on August 24, bringing heavy rain to parts of Louisiana, Mississippi, Alabama, and the Florida Panhandle.
- During the same period, Hurricane Laura moved through parts of the Dominican Republic, Haiti, Puerto Rico, Cuba and Jamaica, where it knocked out power, collapsed buildings, and triggered landslides and flooding.
- Laura intensified into Category 4 Hurricane with maximum sustained winds of 150 mph before making landfall near Lake Charles, Louisiana, on the morning of August 27.
- Back-to-back storms pose a serious threat to energy facilities across Louisiana and Texas, with 300 offshore facilities evacuated as of August 26, suspending roughly 84 percent of total oil output and 61 percent of total natural gas production.
- Ports along the Texas-Louisiana Gulf Coast, including all tributaries and connecting waterways, set Port Condition Zulu on August 26 ahead of Hurricane Laura, effectively bringing vessel traffic in the region to a standstill.
- The storms have impacted major highways and rail lines, complicating evacuation efforts and delaying shipment deliveries. Storm surge, flooding, and debris have forced some roads to close completely.
- Further disruptions may occur if Hurricane Laura triggers extensive flooding and strong winds in the region that could cause knock-on disruptions at oil and gas facilities along its path.
- Those with business in the affected areas are advised to stay abreast of storm forecasts and work with supply chain partners closely to ensure adequate preparedness and recovery.
In the first half of the year, experts at Riskpulse and Everstream Analytics predicted in its tropical storm season outlook that 2020 could see one of the most active tropical storm seasons in at least 22 years. The US National Oceanic and Atmospheric Administration (NOAA) announced as well that the season can expect between 19 and 25 named storms. With more than a dozen named storms by the end of August, the season is on track to live up to this prediction.
The latest major storms to alarm residents in the region were Tropical Cyclone Marco and Hurricane Laura, which emerged around August 20 and have since cut a path through parts of the Caribbean, causing flooding, landslides, and infrastructural damages there, before reaching the Louisiana-Texas Coast in the United States within a three-day period this week. While official damage estimates have yet to be released at the time of writing, an initial analysis by Everstream Analytics suggests that the storms have already severely impacted oil and gas production as well as logistics and port operations along the Gulf of Mexico.
While Tropical Cyclone Marco dissipated by August 26, Hurricane Laura has just made landfall in the State of Louisiana in the United States. This report aims to provide an overview of the initial disruptions caused by these rare back-to-back tropical storms, and help supply chain professionals anticipate the knock-on effects that could further disrupt supply chains across the region in the days to come.
Tropical Cyclone Marco
By August 25, Tropical Cyclone Marco had weakened into a Tropical Depression from a Tropical Storm and dissipated early Wednesday, August 26. Marco made landfall near the mouth of the Mississippi River on the evening of August 24 with maximum sustained winds of 40 mph.
The storm brought heavy rains and gusty winds to parts of Louisiana, Mississippi, Alabama, and the Florida Panhandle but had no major impacts on port operations, logistics hubs and lanes, or industrial activity. Although several ports in Texas, including Port Arthur, Port Beaumont, Port Orange, and Port Sabine, declared Port Condition X-RAY to maintain readiness ahead of the storm, port authorities did not restrict vessel or cargo movement. The impact of Tropical Cyclone Marco on logistics and production operations were minor but ports and rail lines used preparation for Marco to also prepare for the stronger Hurricane Laura.
Category 4 Hurricane Laura
Unlike Marco, which gradually dissipated within a relatively short time frame, Hurricane Laura continued to gain strength as it approached the United States. It ultimately made landfall near Lake Charles, Louisiana, in the early morning hours of August 27 as a Category 4 Hurricane with maximum sustained winds of 150 mph.
Before reaching the Texas-Louisiana coastline, Hurricane Laura moved through parts of the Caribbean, including the Dominican Republic, Haiti, Puerto Rico, Cuba, and Jamaica, where it knocked out power, collapsed buildings, and triggered landslides and flooding in some areas.
As it made landfall in Louisiana, Hurricane Laura brought catastrophic storm surges and damaging winds to the areas it passed through. Storm surges are expected to be felt as far as 40 miles inland in southwestern Louisiana, and inland floods could reach as far east as the Mississippi valley and as far north as Arkansas and the Ohio valley, according to predictions on August 27. Forecasts also warn that Laura could trigger isolated tornadoes over Louisiana, Texas, and Mississippi before it dissipates. While no detailed damage reports have been released at the time of writing, pre-landfall predictions suggested that the storm could damage buildings, close highways, and cut off water and electricity supply for days, with some estimates putting total possible financial damages at between USD 6 billion (EUR 5.1 billion) and USD 18 billion (EUR 15.2 billion).
The governors of Louisiana, Texas, and Mississippi have all issued state of emergency declarations over the weekend in preparation of storm surges, heavy rains, and flooding in parts of the states. At the time of writing, local authorities have announced evacuation orders of varying severity affecting around 1.5 million residents in anticipation of the storm, including mandatory evacuation orders in coastal areas that are home to some of the United States’ biggest oil and gas companies.
As of August 27, Tropical Cyclone Marco and Hurricane Laura have caused significant disruptions to supply chain networks located along the Gulf of Mexico, with oil and gas production as well as road, railway, and port operations in both states being particularly impacted.
Production halts along the Gulf of Mexico
Oil and gas companies along the Louisiana and Texas Gulf Coast have been preparing for possible disruptions since the end of last week, with several facilities continuing to shut down, evacuate personnel, or run through preliminary emergency protocols.
According to the U.S. Energy Information Administration, the area in which Hurricane Laura is expected to strike is one of the country’s most important regions for energy resources, with federal offshore oil production accounting for 17 percent of total U.S. crude oil production and natural gas production amounting to 5 percent of total U.S. dry production. In total, 45 percent of all petroleum refining capacity and 51 percent of total U.S. natural gas processing capacity are located across the Gulf of Mexico. Most notably, Jefferson County in Texas is home to Beaumont, Port Neches, and Port Arthur, while Westlake and Lake Charles are located in Louisiana’s Calcasieu parish, where some of the country’s biggest oil and gas companies run production sites.
So far, temporary production halts across both states have resulted in the reduction of crude oil production close to the drop the sector experienced in 2005 when Hurricane Katrina hit the region, and suspended around 90 percent of total offshore production in the Gulf of Mexico.At the time of writing, more than 300 offshore facilities have been evacuated in preparation of Hurricane Laura, suspending around 1.56 million barrels of crude oil production per day in the Gulf of Mexico, roughly 84 percent of the total output. Similarly, gas production worth 1.54 billion cubic feet per day has been halted, adding up to almost 61 percent of total regional output. According to some estimates, between 10 to 12 percent of the United States’ refining capacity could remain shut for more than half a year if Hurricane Laura turns out to be particularly destructive as it moves along the Gulf Coast.[ii]
Among the most notable energy companies that have confirmed temporary production halts in Texas and Louisiana as of August 26 are Total SA, Motiva Enterprises, LLC and Valero Energy Corporation (Port Arthur, TX), Chevron Corporation (Pasadena, TX), ExxonMobil Corporation (Beaumont & Baytown, TX) as well as Citgo Petroleum Corporation, Phillips 66, LyondellBasell, and Sasol Limited (Lake Charles, LA). Furthermore, Cheniere Energy Inc., the largest U.S. exporter of liquefied natural gas, has evacuated its staff, suspended operations at its Sabine Pass LNG project, and declared force majeure on its U.S. Creole Trail Pipeline, which feeds into Sabine Pass, ahead of the storm. A force majeure clause will also remain in place for all of INEOS Olefins & Polymers USA’s polypropylene production in Texas until further notice due to the expected storm impact.
In addition to short-term production halts, damages caused by Hurricane Laura could further exacerbate challenges in the oil & gas industry, where a series of bankruptcies have been triggered this year due to business disruptions caused by the ongoing global COVID-19 outbreak. According to sources, refineries along the Gulf of Mexico were already processing around 17 percent less crude oil before the two back-to-back storms reached the region in order to accommodate the lower demand and swollen stockpiles amid the COVID-19 outbreak. Additional loss of profits due to damaged equipment and facilities resulting in prolonged production halts could push some financially strained companies over the edge of bankruptcy.
Ports operations across the Texas-Louisiana Coast disrupted
Several ports along the Texas-Louisiana Gulf Coast, including all tributaries and connecting waterways, set Port Condition Zulu on August 26 ahead of Hurricane Laura making landfall. Port Condition Zulu requires the closing of all port operations and vessel movement to prepare for gale force winds expected within 12 hours. Cargo deliveries have either been rerouted to ports outside of the storm’s track, most notably to ports in Florida or Georgia, or will remain in port for the remainder of the storm. Therefore, delays in maritime cargo transport should be expected.
The arrival of Hurricane Laura threatens two of the most critical ports in the region, the Port of Houston, Texas and the Port of New Orleans, Louisiana. The Port of Houston is one of the most important container gateways in the Gulf of Mexico for petrochemical facilities located near Lake Charles in western Louisiana and handles approximately 70 percent of the Gulf’s container cargo. The Port of New Orleans is a major container gateway in the Gulf of Mexico for petrochemical facilities near the Mississippi River in Baton Rouge, Geismar, and Plaquemine parishes. The New Orleans port is also the largest grain port in the United States, handling over 50 percent of all grain exports annually.
|Port of Galveston||Galveston||Texas||high||Cyclone, Wind Gust, Wind, Storm Surge|
|Port of Houston||Houston||Texas||high||Cyclone, Wind Gust, Wind, Storm Surge|
|Port of Texas City||Texas City||Texas||high||Cyclone, Wind Gust, Wind, Storm Surge|
|Port of Port Arthur||Port Arthur||Texas||high||Cyclone, Wind Gust, Hurricane, Wind|
|Port of Port Neches||Port Neches||Texas||high||Cyclone, Wind Gust, Hurricane, Wind|
|Port of Beaumont||Beaumont||Texas||high||Cyclone, Wind Gust, Hurricane, Wind|
|Port of Orange||Orange||Texas||high||Cyclone, Wind Gust, Hurricane, Wind|
|Port of Lake Charles||Lake Charles||Texas||high||Cyclone,Wind Gust,Hurricane|
|Port of Lena||Lena||Louisiana||high||Wind Gust|
|Port of Shreveport||Shreveport||Louisiana||high||Wind Gust|
|Port of Alexandria||Alexandria||Louisiana||high||Wind Gust|
|Port of Cameron||Cameron||Louisiana||high||Cyclone,Wind Gust,Wind|
Figure 4 illustrates the ports which are located in high risk areas and will likely be impacted by strong wind gust and storm surges. Due to the strength of Hurricane Laura, a prolonged logistical disruption caused by multi-day closures of major container gateways should be anticipated.
Closure of major highways & rail routes
Hurricane Laura has started to force the closure of major highway lanes and is threatening to disrupt rail hubs. On August 26, a portion of Louisiana Highway 1 (LA 1) has been closed due to rising water ahead of Hurricane Laura’s landfall. Downed trees and road closures are major concerns along Interstate 10 while high winds and flooding could also close some stretches of Interstate 45. Early on August 27, Highway 87 in Bolivar Peninsula, Texas has been declared impassible after waves pushed rocks along the road.
While Tropical Cyclone Marco passed through the Gulf, flood gates in and around New Orleans closed, which has affected traffic interchanging with eastern rail carriers. BNSF, a railway company, reported that due to the gate closures and flooding concerns, it is holding all New Orleans-bound trains from moving into the area and re-routing traffic as needed.xiv Reports from several rail carriers including Norfolk Southern, Union Pacific, and Kansas City Southern have indicated that they are working to move shipments over alternate interchange gateways.xiv Norfolk Southern officials said that shipments destined to or traveling through New Orleans and Mobile will be impacted and the duration of the disruption is not known at this time. Union Pacific’s intermodal terminal in Avondale, Louisiana, is closed until further notice. Kansas City Southern also reported that the closure of the Port of Gulfport in Mississippi has affected the company’s rail service in and out of the port, as well as its interchange with CSX at Gulfport.
Louisiana Governor John Bel Edwards said at a briefing on Wednesday urged residents to evacuate ahead of the potentially catastrophic Category 4 hurricane. Highways in Texas and Louisiana will likely be too dangerous to drive on. Flooding could close parts of Interstate 10, which is about 30 miles north of the Louisiana coastline. Other major highway lanes in the storm’s path include I-49, I-20, I-30, and I-45.
The coronavirus pandemic has hit Southern U.S. states particularly hard and added layers of complexity and confusion to evacuations. One intake shelter in Austin, Texas, began turning evacuees away on Wednesday morning after it ran out of hotel vouchers. Emergency airplanes also have limited capacity due to COVID-19 guidelines.
The hurricane has strengthened so rapidly that it is was on the verge of becoming a Category 5 hurricane before it made landfall in Louisiana in the early morning hours of August 27, after which it is expected to rapidly weaken. The National Hurricane Center warned of potentially catastrophic and life-threatening storm surge, extreme winds and flash flooding on the evening of August 26 along the northwest Gulf Coast.
At the time of writing, more than 80 percent of crude oil production and almost 61 percent of natural gas production in the Gulf of Mexico remain suspended as companies await Laura’s passing. Major oil and gas operators in the region did not specify how long their sites will remain shut. However, those with business partners in the region should expect production delays in the coming days as employees return to work and begin to assess potential damages caused by Hurricane Laura. Additionally, further disruptions could occur if Hurricane Laura triggers extensive flooding and strong winds in the region that could cause knock-on disruptions at oil and gas facilities along its path.
- Keep abreast of storm alerts: Supply chain managers should ensure that they are well-informed about brewing storms that may disrupt their production lines and shipment deliveries from the moment a storm begins to emerge. While a storm’s trajectory and wind speed may change at any given time, it is important to be aware of storm forecasts and any preemptive measures being adopted by local authorities, like port closures, shelter-in-place orders, or grounding of flights. Managers should also continue to monitor storms after landfall to be able to quickly react to potential knock-on disruptions, such as flooding.
- Maintain effective communication with key partners: Those doing business in storm-prone areas should maintain close and well-established communications channels with material suppliers, freight forwarders, and production sites to quickly account for any disruptions within the network. Suitable risk monitoring tools can also help organizations have on-the-ground intelligence on capacity availability and constraints, closure of affected cargo transportation hubs, and the latest information on service cancellations to aid in the discussion with key partners on the best course of action to take.
- Map and visualize key supply chain locations: As a long-term strategy, companies should map and visualize the key locations in their supply chain network to gain a comprehensive overview of where they operate, source from, and which transportation hubs are frequently used. A better understanding of key supply chain chokepoints will help to assess the potential impact upcoming storms may have on business operations, including their risks to individual shipments, products, and revenue.
- Establish detailed contingency plans: As tropical storms occur annually, companies should proactively develop hurricane preparedness plans prior to the peak season, including alternative ways of communication, ensuring electricity supply at key locations, additional inventory within ones supply chain network, and implementing a defined employee emergency protocol.