Supply Chain Risk

Harvey Hampers Third of U.S. Refining Capacity

Overall economic impact may reach $100 billion.
By: | September 5, 2017 • 4 min read

Coast Guard personnel walks through Aqueous Film Forming Foam (AFFF) as the top layer blows off spilled oil at a Kinder Morgan Liquid Terminal in Houston, Texas, Aug. 30, 2017. AFFF is a safety measure used to prevent exposed petroleum from igniting. Photo: U.S. Coast Guard

From the newest export terminals for liquefied natural gas to refineries first built before World War II, Hurricane Harvey’s track from Corpus Christi, Texas to Louisiana could not have been better designed to imperil the heart of North America’s refining and petrochemical industry.

Andrew Coburn, director, External Advisory Board, Cambridge Centre for Risk Studies

The U.S. Department of Energy (DOE) reported that six refineries around Corpus, seven running from Houston to Galveston, and two more in Beaumont and Port Arthur shut down. Five others across the region were operating at reduced rates. Those closures comprise refining capacity of almost 4 million barrels per day.

That represents about 40 percent of total capacity along the Gulf Coast, and 21 percent of total U.S. refining capacity. The five refineries operating at reduced rates represent a further 1.5 million b/d, or 16 percent of Gulf Coast capacity and 8 percent of total U.S. capacity. That raises the total national capacity impinged to a stunning 29 percent. Beyond the processing capacity, at least 11 oil and gas pipelines were shut or operating at reduced rates either because of actual flooding or for lack of volume.

The Cambridge Centre for Risk Studies tracks the economic activity of 300 cities around the world assessing them for the implications of shocks and disruptions. According to Andrew Coburn, director of the advisory board, the core gross domestic product (GDP) for Houston is $314 billion. In January the center ran a model of a storm similar to Harvey hitting Houston and estimated that the total economic hit to that GDP at $60 billion. The GDP of the greater Houston area is about $500 billion. Proportionally that would put storm disruption at $100 billion.

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“Beyond the immediate impact to industry,” said Coburn, “there is also the disruption to the national and global supply chains.” Houston is a major rail center, container port, crude-oil and fuels port, air hub, and trucking center.

Upstream of the refineries, oil and gas production offshore as well as in the prolific Eagle Ford shale formation in south Texas is heavily reduced. Jeff Quigley, director of energy markets for Stratas Advisors, said during an August 30 webinar that he expected offshore production to come back sooner rather than later. Onshore production, however, was harder to forecast because it is so decentralized.

“Beyond the immediate impact to industry, there is also the disruption to the national and global supply chains.” — Andrew Coburn, director, External Advisory Board, Cambridge Centre for Risk Studies

David Robertson, global head of energy risk consulting for Allianz estimated that about 800,000 b/d of oil production was impacted, which is close to 10 percent of the national total. “That is having a predictable impact on pricing.” He added that the pipelines and are under particular pressure.

Several insurance and process-industries sources noted that refineries and chemical plants along the Gulf Coast are designed to withstand hurricanes, and that operators had sufficient time to wind down operations and secure the facilities. However, pipe racks, pumps, and tanks are all vulnerable to leaking, floating, or being displaced by water or debris.

“The refineries are run by sharp people who have learned important lessons from previous hurricanes,” said Robertson. “They have a good track record for operations, especially at a steady state. Historically the largest losses in the industry have not come from storms but from incidents on start up, shut down, or maintenance.”

The notable exception to facilities being secured is the Arkema peroxide plant northeast of Houston in Crosby, Texas. When the plant was flooded and lost its generators, the peroxides could not be kept cooled and auto-ignited in a series of fires that caused toxic releases. Why that facility was more vulnerable than others to flooding has yet to be determined.

Other than that there have yet been no reports of major damage to industry as a result of the storm. “The waters are only just starting to go down but we have not heard of any significant damage to refineries or chemical plants,” said John A. Rathmell, Jr., president of Lockton marine and energy, and a former Risk & Insurance Power Broker.

“A lot of our clients in the energy and chemical sector have been through multiple storms. They have hardened their faculties by raising critical equipment off the ground. So far we have not heard of any problems with process unit integrity.”

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Two other common concerns are pollution and business interruption (BI). The latter is not likely to apply broadly, Rathmell explained, because most of the major oil and chemical companies retain those risks. Those that do buy BI coverage may have 30- or 45-day waiting periods, more commonly 60- or 90-day.

Pollution liability is much more complicated, he added. Unless it can clearly be demonstrated that a substance leaked from a certain facility, then contamination is likely to be considered ambient in such a massive flood. Hundreds of gas stations, warehouses, junk yards, and dumps were inundated by Harvey.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]