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Analysing the impact of Hurricane Harvey

The Harvey Forecast

Dennis McKinney, a procurement and strategic sourcing professional, witnessed Hurricane Harvey’s rain, wind and destruction about 30 miles northwest of Houston in his home in Cypress, Texas. Some 33 inches of rain fell and an apparent tornado damaged neighbourhoods adjacent to his subdivision. The storm and its fury “just kept coming” with driving rain and wind. He was not sure it would ever stop, but sheltered in place, hoping the rising water would not flood his home; luckily, it didn’t. Finally, the storm moved on but flooding, disruption and displaced people remain, and rescue and recovery are now the priorities.

 

Houston’s economy has become much more diverse over the years, McKinney notes, however, it is still driven by oil and gas, chemicals, healthcare, manufacturing and import/export activities.

 

“As flooding recedes and infrastructure and employee availability stabilises, businesses will ramp up quickly to drive economic stability,” he says. “Support from local, state and federal levels will help drive these efforts but Houstonians will have to make it happen sooner rather than later.”

 

Impact on the supply chain

 

Eyeing the likely supply chain disruptions, in McKinney’s opinion, there will be a significant impact on the supply of goods coming in and going out of the city and much of the surrounding area for at least 30 days.

 

IHS Markit, a provider of information and services, identified a large number of impacts across the petrochemical sector, including a shutdown of nearly 20% of Gulf of Mexico oil and gas output.

 

During the storm, US Gulf of Mexico operators shut down crude oil output that totals around 320,000 barrels per day, according to IHS, which equates to around 18% of total production in the area. In addition, about 0.6 billion cubic feet per day or 19% of the Gulf’s natural gas output was shut in. Wide-ranging pipeline and refinery shutdowns are also a problem, although so far damage to those facilities does not appear to be too significant. Together the affected facilities represent more than 30% of US refining capacity – making price spikes likely, at least in the motor fuel market across much of the US.

 

However, Martha Leshine, acting president and CEO at New England Fuel Institute, which focuses on non-motor fuels, says although she is concerned with refining capacity in Houston, refiners in New Jersey, Delaware and Pennsylvania provide a significant amount of the heating oil used in the northeast, with only about 4% coming from Gulf Coast refineries. Likewise, she adds, “a significant part of the heating oil sold in the US is blended with renewable biofuels that are refined at local biodiesel plants.”

 

In the substantial Gulf Coast chemical sector, IHS notes the amount of confirmed US ethylene production offline stands at about 41%. Likewise, 30% of the chemical grade propylene (CGP), and polymer grade propylene (PGP) supply, most of which originates in the region, is confirmed offline. Several other materials are also reported as having problems across the region, according to IHS including Polyethylene, Polypropylene, Benzene, Chlor Alkali/Vinyls, and Methanol, with at least one Texas-based methanol/acetic acid unit confirmed to have shut down. One facility, the Arkema chemical plant at Crosby, appeared to have suffered damage due to flooding that led to a chemical release.

 

Port facilities are also out of service, although perhaps not for too long. This is disrupting petroleum exports as well as the import of goods from Mexico and Europe. According to a Wall Street Journal report, companies are diverting shipments as far afield as ports in Mexico and the Bahamas and incurring trucking charges across the continent to get goods to their destinations. The Wall Street Journal report also indicated the US Coast Guard believes it could take weeks to make the critical Houston Ship Channel safe for navigation.

 

In other areas, reports indicate corporate data centres and a variety of vital infrastructure providers may have managed to stave off serious damage.

 

From his vantage point, McKinney believes the longer-term outlook for recovery is bright, with product and services availability quickly coming up to speed in the next 60-90 days.

 

Companies will continue to assess damage to assets and will determine and prioritise infrastructure and business needs, he says. But he predicts local “drive and determination” will lead to a rapid recovery. “There will be stumbles and hurdles along the way but we will cross them and move ahead,” he adds.

 

Procurement Leaders members can read more in-depth analysis of how one financial services firm looked to recover from the 2013 floods that hit the East Coast of the US click here

 

This article is a piece of independent journalism, written by an experienced journalist and commissioned exclusively by Procurement Leaders.

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