Rita could bump gas prices up

Hurricane's path uncertain, but gulf refineries, rigs batten down

Hurricane Rita

September 23, 2005|By Paul Adams | Paul Adams,Sun reporter

Oil industry experts say energy prices are likely to bounce back upward this weekend as Hurricane Rita charts an uncertain path toward the Houston area, which is home to more than a quarter of the nation's already beleaguered refining industry.

For the second time in a month, gasoline futures climbed and natural gas prices hit new highs as oil companies abandoned hundreds of rigs in the Gulf of Mexico and shut down refineries that feed a pipeline that carries a majority of the Baltimore area's fuel.

But energy markets struggled to interpret from the weather data how close Rita's core would come to refineries that line the Houston Ship Channel, sending prices gyrating wildly throughout the day and leaving many scratching their heads trying to figure out what will happen next.

Gasoline for November delivery went up 8.63 cents on the New York Mercantile Exchange to $2.14 a gallon, and in coming days that increase will filter down to the retail level - just as prices at the pump were approaching pre-Hurricane Katrina levels across the Baltimore region. Pump prices fell yesterday to an average of $2.88 per gallon for regular unleaded in Maryland, down from a post-Katrina high of around $3.27, according to motor club AAA.

After three days of increases, light sweet crude for November delivery fell 30 cents yesterday to $66.50 a barrel on the NYMEX. "Basically, 50 miles will make the difference between whether we're paying $3.50 per gallon or $2.75 a week from now," said Tom Kloza, an analyst with the Oil Price Information Service, an industry research firm.

Rita, a large Category 4 hurricane, weakened slightly and shifted course to the northeast yesterday, slightly raising hopes that the worst of the storm will miss critical refineries and spare the U.S. economy another energy shock.

Energy analysts were mixed in their assessment of the risk, with some predicting a potentially catastrophic blow to gasoline and natural gas supplies and others downplaying any comparisons to the devastation to facilities around New Orleans from Katrina. Unlike in New Orleans, the refineries around Houston and other gulf cities like Galveston, Corpus Christi and the Beaumont-Port Arthur region tend to be well above sea level and are protected by barrier islands.

That sharply reduces the potential for catastrophic flooding, said Daniel Lippe, president of Petral Worldwide, an oil industry consulting firm in Houston.

In addition, there are no levees at risk of breaking, and there is less danger of another shutdown of the Colonial Pipeline, which feeds gasoline to the Baltimore region, several industry experts said. Refineries in Texas also are more likely to have the ability to produce their own electricity, which means - assuming they aren't flooded - they can at least partially restart operations after the storm even if power to the rest of the region is down for days or even weeks.

Meanwhile, many of the oil rigs that were evacuated in the gulf are running on a sort of autopilot, which means they can continue pumping so long as waves from the storm don't reach a certain height and trigger an automatic shutdown.

"The reality of this is that the stock market has viewed this as a Katrina look-alike, and it's not," said Dan Pickering, president of Pickering Energy Partners, a Houston consulting firm.

But refiners and oil companies were taking no chances this week as the storm's path became more apparent. At least a dozen refineries capable of producing about 3 million barrels of gasoline a day - more than a fifth of U.S. refining capacity - have closed or reduced production around Houston, Corpus Christi and the surrounding area. Among them is Exxon Mobil Corp.'s Baytown, Texas, refinery, which has the capacity to produce 557,000 barrels a day and is the nation's largest.

The closures come at a time when supplies are strained as a result of Katrina. Though much of the industry has recovered quickly, four refineries accounting for about 5 percent of U.S. capacity remain offline.

Even before the hurricanes, U.S. refiners were producing at 97 percent capacity - the highest level considered safe by industry standards.

But the industry is better prepared for Rita than it was for Katrina, industry officials said. The refineries that closed in advance of the storm had ample warning, which means they were able to do what's called a "controlled close." That will shorten the time needed to restart, some industry experts said. Still, consumers can expect potential supply disruptions in coming days.

"However, this is a huge storm with potentially significant storm surge," said Bob Slaughter, president of the National Petrochemical and Refiners Association. "If we lose power for any period of time, it could be difficult to restart facilities even if they're not damaged."

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