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Harvey exposes striking new energy risks in the age of shale

  • Hurricane Harvey's impacts on the energy sector are being felt far and wide as U.S. energy dominance grows.
  • The growing concentration of energy infrastructure in the Gulf Coast creates a vulnerability for the U.S. and the world.
  • There are five steps the US energy sector must take to prepare for the next major storm.

As Houston and other Texas communities begin taking stock of the deadly devastation left by Harvey, the storm's impacts on the energy sector are being felt far and wide—in ways not seen before, reflecting how dramatically the U.S. energy landscape has changed in the last decade.

The U.S. Gulf Coast energy hub is no stranger to extreme weather. In 2005, Hurricanes Katrina and Rita ravaged the region's refining capacity, production and pipeline operations. The industry learned critical lessons about resilience from the deadly storms, but the years since have seen massive changes to the sector that have altered the U.S. economy, the nation's energy outlook and global markets. It has also brought new risks to all three, some of which are only now being realized.

Consider that when Katrina and Rita hit, the U.S. was the world's largest importer of refined petroleum products and was importing record high volumes of oil. Dozens of projects were also being proposed to import costly liquefied natural gas (LNG). Thanks to the shale revolution, the U.S. is now the leading exporter of refined products and net oil exports have tumbled. We are now a net exporter of natural gas and are shipping large volumes of crude abroad as well.

The growing concentration of energy infrastructure – production, refineries, processing and petrochemical plants, storage terminals, ports and more— in the Gulf Coast creates a vulnerability for the U.S. and the world. Roughly half of U.S. refined product exports go to Latin America, and Mexico depends on the U.S. for half its imports. Harvey's disruptions caused European and Asian petroleum product prices to rise, as traders diverted cargoes to meet needs in the Americas. When the Gulf Coast's energy system takes a hit, it is now felt everywhere. And in the next few years, several new natural gas export facilities will come online, meaning the next disaster could have a big impact on global gas markets as well.

"When the Gulf Coast's energy system takes a hit, it is now felt everywhere. And in the next few years, several new natural gas export facilities will come online, meaning the next disaster could have a big impact on global gas markets as well."

To be sure, there have been some clear resilience improvements since Katrina. Much progress has been made to harden energy infrastructure and improve the resilience of the fuel supply chain. A larger share of oil production now comes from onshore shale wells that are much better protected than large offshore platforms. The increase in supply options and infrastructure routes means markets can more quickly signal supply disruptions and respond to them through price movements.

It will take time to fully assess the impacts of Harvey on the energy system. But policymakers would be well-advised to consider some preliminary lessons:

First, while much progress has been made, much more remains to be done to harden energy infrastructure. This may prove especially true for new facilities built quickly to respond to the rapid shale boom. And new infrastructure should be built taking into consideration the future impacts of climate change, which is why it was so short-sighted of the Trump Administration to streamline the process for approving infrastructure two weeks ago by eliminating the need to plan for climate change.

Second, well-functioning, interconnected, and flexible markets bolster energy security. Removing barriers to energy trade, like export restrictions, allows markets to function more effectively. Increased pipeline, storage and port capacity, allows the system to respond more flexibly. Policymakers should ensure an efficient infrastructure permitting process.

Third, while price spikes can divert needed supplies and thus resolve shortages, higher prices take a toll on consumers and the broader economy. These costs are not borne by private firms. Government thus has a role to temper price spikes and physical supply disruptions with strategic stocks.In recent years, Congress has sold off large quantities of the U.S. Strategic Petroleum Reserve to fill short-term budget holes, assuming (incorrectly) that declining oil imports cut our vulnerability to supply disruptions. The Trump Administration has proposed selling off half the SPR. We should not get rid of this national security asset, but rather should modernize strategic stocks to match the risks we now face, including swapping a portion of oil for refined petroleum products and ensuring the infrastructure exists to bring both to market.

Fourth, it is clear that even if we import less, our vulnerability to oil disruptions is proportional to our economy's oil-dependence. Continued policy efforts to reduce the economy's oil-intensity will lessen the impacts of future outages and price spikes—a critical reason the Trump Administration's proposal to reduce the scheduled increases in fuel economy standards is unwise.

Finally, Harvey, along with the floods in southeast Asia that killed 1,200, remind us of the importance of acting more urgently to address the threat of climate change, which increases the risks of catastrophic weather events. Hurricanes are not new, of course, but climate change can increase the severity of their impacts, like the extreme rainfall and flooding seen during Harvey. Rising sea levels, warmer waters, and increased moisture in the atmosphere exacerbate the severity of extreme weather events.

The devastation wrought by Harvey reveals many new risks and impacts of the changed U.S. energy landscape. As the Gulf Coast recovers and rebuilds, we should heed the lessons of Harvey to prepare better for next time.

Commentary by Jason Bordoff, a professor of professional practice in international and public affairs and the founding director of the Center on Global Energy Policy at Columbia University's School of International and Public Affairs. He was previously senior director on the staff of the National Security Council and special assistant to President Obama. Follow him on Twitter @JasonBordoff.

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