A lot of attention has been paid to the plight of upstream oil and gas companies — the hardest-hit subsector amid the Covid-19 pandemic — but further downstream, refiners and LNG companies are also feeling some pain.

Refinery utilization rates — a measure of how much of their production capacity refineries are using — are down 20% to 25$ across regions. Along the Gulf Coast in particular, utilization dipped to 71.8% in May, its lowest point since 2017, according to data from the U.S. Energy Information Administration. And at 77.8% during the first week in June, Gulf Coast utilization is still lower than any other week since the EIA began recording the data in 2010, aside from the trench in 2017. A more normal June utilization rate would historically have been between 90% and 95%, according to the EIA data.

The pressure on refiners will continue as long as the pandemic is still suppressing demand, said Clint Follette, a Houston-based Boston Consulting Group managing director and partner. If social distancing continues deep into 2021, some of the smaller refineries might end up having to shutter their operations permanently, he said.

But refineries generally aren’t as cash hungry as the companies producing crude oil upstream. They still have certain sustaining costs, but most of the larger facilities, like those near Houston, are pretty resilient, Follette said.

“It’s not like the upstream, where it’s sucking up capital,” Follette said.

Petrochemical companies are also having a tough time, though demand for their products hasn’t sunk quite as low as that for fuels, Follette said.

“It was already a tough environment for the chemical industry because a lot of capacity had already come online. You had a little bit of oversupply even before this disruption,” Follette said. “They went from a bad margin year to a worse margin year.”

LNG

Houston’s burgeoning liquefied natural gas industry is also contending with issues. Natural gas production as a byproduct of crude production, called associated gas, has gone down as oil companies cut spending. That has reduced U.S. feedstock supply for LNG exporters and pushed domestic natural gas prices up, making exports to international destinations — where the pandemic is hurting demand — less attractive, said BCG analyst Alex Dewar.

“It’s a bizarre situation where U.S. gas is pricing above Europe and Asia,” Dewar said.

LNG facilities along the Gulf Coast have been built or modified at great expense over the past several years to export the incredible quantity of natural gas being produced via onshore drilling.

That means that, even in a world where the pandemic ends in the short term, that probably pushes up domestic supply more quickly than international demand, further hurting LNG exporters in the short- and medium-term, Dewar said.

As an industry in its early stages, many U.S. LNG export hopefuls are still working on projects to increase their capacity. But none of those projects are likely to move forward as long as current conditions persist, Dewar said.

“It’s challenging to see how anyone reaches a final investment decision in the next several years,” Dewar said.

In fact, the Netherlands-based Royal Dutch Shell PLC — whose U.S. operations are headquartered in Houston — walked away from an LNG export project in Lake Charles, Louisiana, earlier this year, and Houston-based Liquefied Natural Gas Ltd. sold out of its flagship development project for just $2 million. Houston-based Tellurian Inc. (Nasdaq: TELL) also is behind schedule on reaching a final investment decision on its flagship project, the Driftwood liquefied natural gas export facility to be built in Louisiana.

By Joshua Mann – Senior Reporter

Courtesy of the Houston Business Journal

https://www.bizjournals.com/houston/news/2020/06/12/how-covid-19-hits-downstream-gulf-coast-energy.html

Two energy companies, Houston- and New Jersey-based NRG Energy Inc. (NYSE: NRG) and Houston-based Aramco Americas, have each committed over $2 million to Covid-19 relief efforts. Combined, $630,000 of the funds went toward Houston Methodist, according to recent announcements.

Houston-based Reliant Energy, part of NRG, made a $100,000 donation to Houston Methodist to establish the “Reliant Innovation Fund.” The innovation fund will go toward students enrolled in Texas A&M University’s Engineering Medicine (EnMed) program at Houston Methodist Hospital.

EnMed will be based at the $550 million Texas A&M Innovation Plaza campus being developed adjacent to the Texas Medical Center. The TAMU System’s two-degree program provides students the chance to earn a master’s degree in engineering from Texas A&M University and a medical degree from the Texas A&M College of Medicine. The renovated EnMed Building is slated to open later this year.

Reliant’s additional $30,000 donation to Houston Methodist will also expand patient-centric communication through MedTrak Inc.’s CareSense mobile app. The Pennsylvania-based digital platform will allow Houston Methodist to continue caring for its Covid-19 patients after they’re discharged by aiding in patient education, health recovery, risk-factor monitoring, goal setting, care coordination and medication adherence.

“Innovating is at the core of what we do at Houston Methodist, and this generous gift from Reliant will make a difference for patients both now and for years to come,” Faisal Masud, medical director of the Center for Critical Care at Houston Methodist Hospital, said in a May 28 press release. “The challenges that we have and will continue to face with the Covid-19 pandemic amplifies the need for fresh ideas to combat this disease and treat those who have been affected.”

Houston Methodist also received $500,000 from Aramco Americas to support the health system’s Covid-19 research, including convalescent plasma therapy. As other clinical trials are explored, the therapy may serve as a vital treatment option, according to a statement from Houston Methodist.

Aramco Americas, the U.S. subsidiary of Saudi Aramco, also provided funding for other coronavirus-related efforts:

• $500,000 to the Houston Health Foundation will provide greater access to mobile Covid-19 testing. Testing will be operated by the Houston Health Department and will rotate through vulnerable neighborhoods over the next several weeks.
• $100,000 to the Houston Health Foundation will provide 1,000 grocery gift cards for first responders and health care officials through Aramco’s “Our Houston Heroes” campaign.
• $54,000 to the Houston Food Bank from an employee campaign with company match will result in the distribution of 162,000 meals.

In April, Aramco donated approximately $90,000 and delivered 30,000 KN95 protective masks to the city of Houston. The masks were distributed by the Houston Health Foundation and Houston Health Department to city employees.

“Aramco has made it a point to step up for Houston’s community during good times and challenging ones, and their donations – coming during a crisis of unprecedented scale – are needed support for our medical response and first responders,” Houston Mayor Sylvester Turner said in a May 20 press release.

The rest of Aramco Americas’ more than $2 million in donations will benefit organizations in other communities where it operates.

As the global pandemic continues to impact various industries in Houston, one of the hardest ones hit has been the energy industry.

In April, the Houston Business Journal reported how oil and gas companies are cutting costs and/or headcount. One example is Houston-based Halliburton Co. (NYSE: HAL). The company put 3,500 Houston employees on a 60-day furlough. However, in May, Halliburton laid off about 1,000 employees at its corporate headquarters in Houston, in addition to more job cuts in Oklahoma and two facility closures in Texas.

Experts within the energy industry speculated on how the downturn will affect Houston’s economy, and shared their thoughts about the sector after Covid-19 at the Houston Business Journal’s first energy and virtual panel of 2020.

The panelists

• Chad Burke, president and CEO, Economic Alliance Houston Port Region
• Ken Medlock, James A. Baker III and Susan G. Baker Fellow in Energy and Resource Economics; senior director of the Baker Institute of Center for Energy Studies
• Maynard Holt, CEO at Tudor, Pickering, Holt & Co.

Moderator: Scott Nyquist, director emeritus and senior advisor of McKinsey and Co.

Can you start us off with an overview of what’s happened in the energy markets in the last quarter or so?

Medlock: This is literally a black swan event. There’s really no way to summarize what’s been going on. The current environment has seen crude oil inventories grow to levels not seen since March of 2017. Importantly, though, prices have been much more volatile and quite a bit lower than they were back then and that really is a reflection of a lack of absorption capacity in the marketplace.

The stressors really originated from the demand-side of the discussion. Make no mistake — this is not an energy-only event. This is an economy wide event that we’re living through.

How is the crude oil refining industry handling this kind of shift of environment?

Burke: Obviously, with the lack of movement for the last almost three months now, demand is down significantly. Refining capacity is at about 68 percent utilization a week or two ago. It is ticking up a little bit. I think the latest number I saw was at about 70 percent utilization. (But) that number should be between 90% and 100% utilization.

The interesting dynamic that exists here in Houston and along the Houston Ship Channel is we’ve got well over 130 plants or facilities in the Houston Ship Channel region. About six of those are crude oil refiners. The vast majority of the manufacturing going on here is the 130 or so chemical plants that get most of their feedstock from the natural gas side of the equation.

They have an array of products that are made from the chemicals that come out of these facilities. All of those products that we touch every day comes out of the chemical side of the business.