Energy industry braces for another hurricane

Rita could slow recovery in gulf, shut down more refineries

September 21, 2005|By Cox News Service

WASHINGTON -- The U.S. energy industry, already staggered by Hurricane Katrina, braced for another punch this weekend as Hurricane Rita headed for oil- and gas-producing areas along the Texas and Louisiana coast.

A second hit could raise the chances for a recession, some analysts fear.

The Gulf of Mexico is home to about a quarter of the country's oil and natural gas production, with Houston -- close to where the rapidly strengthening storm is projected to come ashore Friday or Saturday -- serving as the key refining center.

Hurricane Rita, with powerful winds and heavy rains, could hurt in two ways.

First, it could dramatically slow the recovery of production and refining operations devastated three weeks ago by Katrina in the New Orleans area. Second, it could shut down more refineries, pipelines and offshore platforms in the Houston region.

"You got a right cross with Katrina and now a left hook with Rita," said Agbeli Ameko, a partner with First Enercast Financial Inc., a Denver-based energy forecasting firm. "That's worse than getting hit twice in the same spot."

Ameko said his fear is that "whatever was missed by Katrina is now going to get targeted by Rita."

Hurricane Katrina forced the industry to shut down 95 percent of oil and natural gas production and nine refineries in the Gulf Coast area. Day by day, operations have been coming back on line.

But the U.S. Minerals Management Service said that more than 58 percent of daily oil output in the Gulf was still blocked as of yesterday morning as a result of storm disruptions. That was up from 56 percent Monday, reflecting the start of evacuations ahead of Rita.

The shutdown figure could worsen dramatically as energy companies pull more workers from operations in anticipation of Rita.

Oil traders say tight refining capacity, not a lack of crude oil, is the primary reason for the painfully high prices consumers are still paying at the pump.

The 19 refineries operating along the Texas and western Louisiana coasts have the capacity to process nearly 4.5 million barrels of oil a day, representing more than a quarter of all domestic refining capacity.

Analysts are hopeful Rita's impact will be less long-lasting than Katrina's because the Texas refineries are on higher ground than those in the New Orleans area. Also, while Rita could become a Category 4 hurricane with 131-mph sustained winds today -- the same strength as Katrina when it came ashore Aug. 29 -- forecasters said conditions near shore could cause it to weaken before landfall.

"If it stays a Category 3, they are going to have to evacuate all of the platforms, but they will be able to get things back on line fairly quickly because the damage will be less," Ameko said.

Even as analysts were watching Rita, the Organization of Petroleum Exporting Countries was trying to calm energy markets by agreeing to make 2 million extra barrels of oil a day available for the next three months, leading into winter heating season.

The move helped push down oil prices by $1.16, to settle at $66.23 a barrel, below the record of $70.85 a barrel reached Aug. 30. Still, prices are more than 45 percent higher than a year ago.

Kurt Karl, chief U.S. economist for Swiss Reinsurance in New York, said that a Category 4 storm striking energy facilities could end up doing major damage to the economy because "we're in a pretty vulnerable position now."

Consumers already are paying very high prices for gasoline, other petroleum products and natural gas. "If oil prices went to the $80-a-barrel range, then we are likely to have a mild recession," he said.

Karl said such high prices could cause consumers to pull back from spending this holiday season. Even worse, "if businesses think consumers will stop spending, they might stop hiring," he said. "That would be quite problematic."

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