Analysts See Katrina
as `Perfect Storm' for Already High Energy Prices
August 29, 2005 — By Justin Bachman, Associated Press
NEW YORK — With crude oil prices
already near record levels, Hurricane Katrina targeted the heart of
America's oil and refinery operations Sunday, shutting down an estimated
1 million barrels of refining capacity and sharply curbing offshore
production in the region.
It is an area crucial to the nation's energy infrastructure -- offshore
oil and gas production, import terminals, pipeline networks and numerous
refining operations throughout southern Louisiana and Mississippi.
The impact was immediate Sunday night when electronic trading resumed on
the New York Mercantile Exchange, as crude oil futures spiked $4.50 per
barrel, putting the cost above $70 for the first time since oil began
trading there in 1983.
The Category 5 storm was still churning in the Gulf of Mexico but was on
a path to hit New Orleans early Monday.
Last September, Hurricane Ivan also swept across the region causing
heavy damage and reducing the region's output for months.
Katrina's 165-mph wind was fiercer.
Oil companies evacuated workers and shut down more than 600,000 barrels
of daily production in the Gulf. Refiners closed down more than 1
million barrels of refining output by Sunday, but that amount could be
higher because not every producer reports data, said Peter Beutel, an
oil analyst with Cameron Hanover.
"This is the big one," he said. "This is unmitigated, bad news for
consumers."
Gasoline futures soared more than 20 cents per gallon, above $2.12 per
gallon, and natural gas was up $2.20 per 1,000 cubic feet in the opening
minutes of trade. The "out of control" buying is spurred by the prospect
that the region's numerous refineries could be idled for weeks by
flooding, power outages, or both, Beutel said.
The U.S. has ample crude oil supplies, even if major hurricane
destruction trims Gulf oil output and foreign imports, but refining
capacity is extraordinarily tight. As a result, prices for gasoline,
heating oil, jet fuel and other products have flirted with records and
could go even higher this week.
"If this thing knocks out significant quantities of refining capacity
... we're going to be in deep, dark trouble," said Ed Silliere, vice
president of risk management at Energy Merchant LLC in New York.
The market has been on edge for months, with traders and speculators
buying on the slightest fear. With Katrina, all those fears could be
realized, Beutel said.
"Basically I could spill a can of oil at my local gas station and you'd
see the price of crude go up by $1 per barrel," he said.
Crude settled at $66.13 a barrel Friday on the New York Mercantile
Exchange, down $1.36 after hitting $68 last week.
On Friday, Katrina had been expected to be inconsequential to the energy
industry, with many traders selling. That all changed Saturday, when the
system gained power and charged west, directly toward areas of offshore
oil production.
ChevronTexaco Corp. completed evacuations of all workers in the eastern
and central Gulf of Mexico and nonessential workers in the western Gulf
late Saturday, company spokesman Matt Carmichael said.
Chevron has about 2,100 employees and contractors working in the Gulf,
Carmichael said. Chevron will continue to produce 90 percent of its
normal production by remote as long as weather cooperates, he said.
The Louisiana Offshore Oil Port, which processes loads from tankers too
large for mainland ports, evacuated all workers and stopped unloading
ships on Saturday morning said Mark Bugg, the terminal's manager of
scheduling. The LOOP, 20 miles offshore, is the nation's largest oil
import terminal and handles 11 percent of U.S. oil imports.
Royal Dutch-Shell Group evacuated more than 1,000 offshore workers by
Saturday. Only those in the far west remained, the company said on its
Web site. BP PLC and ExxonMobil Corp. also brought workers ashore
Saturday.
Shell estimated 420,000 barrels of oil and 1.35 million cubic feet of
gas per day will be shut in at its central and eastern Gulf facilities.
Exxon Mobil said it has ceased daily production of 3,000 barrels of oil
and 50 million cubic feet of gas.
Valero Energy Corp. evacuated all but a few workers at its
260,000-barrel-a-day St. Charles refinery on Saturday. Murphy Oil Corp.
also shut down its 120,000-barrel-a-day Meraux, La., refinery, and Exxon
Mobil Corp. planned to shut down its 183,000-barrel-a-day refinery in
Chalmette, La.
Motiva Enterprises, a joint venture of Royal Dutch Shell PLC and
state-owned Saudi Arabian Oil Co., began implementing hurricane
contingency plans at its 225,000-barrel-a-day Norco refinery on
Saturday. Motiva also was exploring contingencies for its
235,000-barrel-a-day Convent refinery, about 45 miles west of New
Orleans, Dow Jones Newswires reported.
Source: Associated Press |