The closure of some key pipelines could halt shipments from Texas oil fields. That alone could disrupt operations at Gulf Coast refineries. For example, Reuters reported that Motiva was weighing cuts at its refinery not only because of the risk of floods, but also because it was having trouble obtaining enough crude from all the service interruptions elsewhere. Also, Marathon Petroleum Corp. said it could shut down its 451,000 bpd refinery in Texas City because of a shortage of oil, Bloomberg reports.
Ultimately, that could cause a huge problem upstream. "If there’s no place for it to go, you can’t keep jamming more crude into the line," Libby Toudouze, a partner at Cushing Asset Management, told Bloomberg in a telephone interview.
"While it is premature to speculate on the ultimate impact to our production, we anticipate volumes will be restrained until Gulf Coast and Houston refineries are back online," Gordon Pennoyer, a spokesman for Chesapeake Energy Corp., told Bloomberg.
As a result, the oil will be backed up in the shale fields of the Eagle Ford and even the Permian. That could force production cutbacks if there is no place to store the crude.
A lot of Eagle Ford producers were cutting back anyway as the storm hit, but the refinery and pipeline outages could hit the sector as a whole. "Given the enormous level of rainfall along the Texas Gulf Coast the past 3-4 days, we expect most operators in this area will experience near-term field level and/or takeaway issues," Capital One Securities wrote in a research note on Monday. The WSJ, citing industry analysts, says as much as 400,000 to 500,000 bpd of Eagle Ford shale production could be offline, although some think the figure is much higher. Worse, once offline, shale wells could lose pressure, meaning that when brought back online, they could be less productive.