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Summary: how Harvey has hit US Gulf shipping

Strong impact on seaborne oil and gas trades while other sectors also face severe disruptions

BILLED as the strongest hurricane to make landfall in the US since 2004, Harvey has brought extreme winds, record-breaking rainfalls and devastating flooding to Texas and Louisiana since last weekend.

Harvey first landed between Port Aransas and Port O’Connor, Texas as a Category 4 hurricane on Friday night. Having weakened and been downgraded to a tropical storm, Harvey moved eastwards into the sea before coming ashore again just west of Cameron, Louisiana on Wednesday.

Its immediate impact will last throughout this week, with the US National Weather Service predicting another six to 12 inches of rain.

Aside from playing a significant role in dry bulk shipping and the container logistics chain, the US Gulf region is one of the world’s most important petroleum trading hubs.

Below is an overview of how Hurricane Harvey has hit maritime transport:

 

Port operations — The storm initially shuttered ports in the Galveston Bay area of the Gulf, and subsequently the US Coast Guard closed ports in the Port Arthur and Lake Charles area as the storm moved northeast. The ports of Lake Charles, Beaumont, Nederland, Orange, Port Arthur, Port Neches, Sabine Pass, Galveston, Texas City, Houston, Freeport, and Corpus Christi are all shuttered.

Port Lavaca and Point Comfort are closed to deep draft vessels, Inchcape Shipping Services reported. Vessel operations are not expected to resume until later this week, pending damage assessment and restoration efforts.

The Port of Corpus Christi has reported light to moderate damage and debris. The port’s traffic is blocked by drillship Paragon DPDS1, which broke from its moorings on Saturday and drifted aground at the entrance channel, according to Lloyd’s List Intelligence. Two tugs tried to take control of the vessel, but one of them sank during the operation while the other suffered damage although no casualties were reported.

Louisiana Offshore Oil Port reports normal operations for pipeline receipts and said deliveries continued at its Clovelly Hub.

Other Louisiana ports on the Mississippi River are open and operating normally, ISS said.

 

Tankers — The impact of Harvey on energy markets is significant as the US Gulf region is emerging as the world’s largest export hub of oil products and liquefied petroleum gas, while enjoying rapid growth of crude exports. Many petroleum terminals in the region are closed, and are reeling from catastrophic weather conditions that have strained recovery efforts; tanker operations are expected to be disrupted for days if not weeks.

While some port operations could resume in the coming days, the impact from reduced petroleum production might last longer via alteration of trade flows. The Department of Energy said 19% of oil production and 18% of natural gas output in the Gulf of Mexico was shut as of Monday. Six refineries in the Corpus Christi area and five in the Houston/Galveston area are offline, while some others in the affected region are operating at reduced rates. At least 22 tankers carrying around 15.3m barrels of crude oil are stranded outside Texas oil ports.

Some analysts have highlighted the product tanker segment as most affected by the storm. The US East Coast could seek more European gasoline to offset the disruptions to US Gulf supply, but high stocks could curb actual cargo flows. On the other hand, if Latin America seeks replacement barrels from Europe, Asia or the Middle East, tonne miles would be boosted.

As for crude carriers, the initial market reaction is a spike in Caribbean aframax spot rates. As crude stocks build up, there could be a large one-time demand for tankers once export operations resume.

 

Dry bulk — the US Gulf exports significant amounts of grains and petroleum coke on supramaxes, panamaxes and occasionally capesizes. Delays in vessel operations are expected in the short term, while the longer term impact is not yet certain.

Exports of petroleum coke, a byproduct of the crude refining process, could be the hardest hit of the dry bulk trades. As for agricultural trades, the impact on wheat exports is expected to be larger than that on corn and soybean shipments.

The hurricane’s disruption has the potential to boost spot freight rates as vessels are tied up and unable to return to trading, like what has happened in the supramax segment. But the dearth of cargo could also depressed rates, like what has happened to panamaxes.

 

Containers — Houston handles approximately two-thirds of the US Gulf’s box trades in its Barbours and Bayport terminals. With floods reportedly blocking ground transport in nearby areas, the supply chain could face severe disruption in the near term.

As of Wednesday, shipping lines are urgently scrambling to re-route their US Gulf services, with Houston-bound vessels possibly diverted to New Orleans, Mobile, Tempa or Miami.

 

Cruiseships — Approximately 20,000 passengers on three Carnival cruiseships and one Royal Caribbean ship were not able to disembark in Galveston over the weekend.

Carnival Breeze, Carnival Freedom and Carnival Valor will call at New Orleans this week to allow disembarking. Royal Caribbean has diverted Liberty of the Seas to Miami.

 

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