The National Weather Service has elevated Hurricane Beryl to a Category 5 storm, the earliest a hurricane has ever received such a designation and a reminder of the weather-related risks to the domestic production of oil and energy.
Climate change is producing larger and more frequent storms, which in turn present risks to the U.S. oil and energy industry as well as to the American economy.
Making supply chains and production more resilient is no longer an option but a necessity.
Since 2018, the U.S. has been the world’s largest producer of crude oil, producing about 13 million barrels per day last year and accounting for over 15% of the world’s crude oil output.
Coupled with its leadership in natural gas production and liquified natural gas exports, the U.S. has established its role as a global energy supplier. The energy independence goals set out in the 2000s have been realized; U.S. energy production now consistently exceeds consumption.
But this is elevating the importance of bolstering the resilience of our production, refining and exporting capacity in the face of weather-related events.
With the U.S. leadership in oil and gas production, it should be no surprise that the U.S. also leads the world in refining and export capacity, particularly along the Gulf of Mexico.
But this region is also vulnerable to increasingly severe storms. With ocean temperatures unseasonably warm, Hurricane Beryl’s rapid escalation in intensity is one example.
After tearing through the Caribbean, Beryl is forecast to enter the Gulf of Mexico this week, and oil and gas companies will be on high alert.
Approximately 15% of U.S. oil production and 5% of natural gas production occur offshore in the Gulf of Mexico.
When a hurricane enters the Gulf, drilling rigs and platforms often start shutting down and evacuating personnel.
Additionally, nearly half of U.S. oil and gas refining capacity is situated along the Gulf Coast, so any shutdowns have a ripple effect on the broader economy. As increasing LNG capacity comes online, also predominantly along the Gulf Coast, that capacity will also be at risk.
Although Beryl is not forecast to hit the heart of refineries and ports along the upper Gulf Coast, even the threat of such an event has global ramifications.
Crude oi prices have risen in recent days, partially because of the risk of disruption to production, refining and shipping operations. With three of the more prominent forecasting agencies—OPEC, the International Energy Agency, and the Energy Information Administration—all forecasting an oil supply deficit in the second half of this year, on top of geopolitical risks in the Middle East, potential supply reductions or delays from weather events will be closely watched.
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Despite advances made in clean energy, demand for crude oil remains strong, and natural gas has established itself as an important fuel of the energy transition.
The U.S. is well positioned as a global leader for both. But U,S. energy companies will need to do more to remain resilient against these risks as they design new facilities and develop business plans.
