Economic Impacts of Hurricane Forecasts on the U.S. Gulf Coast Petroleum Refinery Industry

Abstract

The US Gulf Coast hosts the largest amount of the US oil refining industry. The region has many refineries, oil-related facilities and other assets that are vulnerable to hurricanes. Projections show that future climate change may cause a larger incidence of more severe hurricanes. This study examines the impact of hurricanes and their severity on refinery crude oil inputs both within the gulf coast region, particularly focusing on the effects of forecasted strength and refinery share in the forecast landfall location. We use econometric models to establish the relationship between refinery crude oil usage and hurricane forecast characteristics, then follow that with a relatively simple economic impact analysis. Our results show that forecasts of stronger hurricanes and larger shares in strike areas lead to greater reductions in refinery crude oil input and more severe economic losses. Stronger hurricanes are found to cause oil input reductions for up to 6 weeks, while oil inputs are increased when weaker tropical storms are forecast. In terms of severe storms, when a Category 4 or above hurricane is forecast to landfall in an area containing 31% of the Gulf Coast refinery capacity is issued, extrapolation of our results shows there would be an 18.39-million-barrel reduction in crude oil input to refineries, causing $771.87 million losses.

Keywords: Hurricane forecast, Oil industry, Refinery, Operating loss, Gulf Coast subregion