Rita Brings Houston's
Big Refining Industry To Standstill
September 23, 2005 — By David Koenig, Associated Press
DALLAS — Drivers, homeowners,
airlines and businesses will end up paying higher fuel bills if
Hurricane Rita magnifies the damage last month's Hurricane Katrina
inflicted on the oil-refining industry.
Most of the refineries on the Texas and Louisiana coasts were shut down
Thursday, and oil and natural gas rigs stood empty on the Gulf of Mexico
as Rita bore down on the heart of the nation's energy industry.
About 5 percent of the nation's oil-refining capacity is still out from
Hurricane Katrina's sweep through Louisiana and Mississippi.
In the Houston area, representing 13 percent of U.S. refining capacity,
every major refinery was closed or in the process of shutting down. So
were most refineries around Port Arthur, Texas, another 7 percent, and
some in Louisiana because of Rita, expected to hit shore Saturday.
"It's potentially a bigger threat than Katrina because there is more
refining capacity in the Houston area," said Bob Slaughter, president of
the National Petroleum & Refining Association. "This is a double whammy
for the industry -- it's an amazing thing to contemplate."
Larry Goldstein, president of the Petroleum Industry Research
Foundation, estimated that precautionary shutdowns would cut refining
capacity by more than 3 million barrels of oil a day -- about
one-seventh of the U.S. total -- for a week. Any damage to the plants
would compound the loss, he said.
Energy Secretary Samuel Bodman said even if the Gulf Coast refineries
escape serious damage, "The public should be ready for interruptions of
supplies for two or three weeks. ... We will be dependent on attracting
cargoes (of gasoline) from abroad which are already en route."
Later, an Energy Department spokesman clarified Bodman's remarks, saying
he was referring to local disruptions in Texas and that the
administration does not expect a significant national impact.
To make up the shortfall from Katrina, the United States has imported
more gasoline and other refined products from Europe. But the imports
are costly, and further cuts in capacity due to Rita are likely to drive
up prices, experts said.
Tom Kloza, an analyst with the Oil Price Information Service of Wall,
N.J., said pump prices along the Gulf Coast may soon jump above $3 a
gallon because wholesale gasoline prices in the region have climbed by
about 75 cents in the past week to $2.50 a gallon before taxes and
dealer markup. Motorists in the East and Midwest would see smaller
increases, he said.
Ken Stern, managing director of FTI Consulting, which advises refineries
on business strategy, predicted $4 a gallon at the pump for gasoline
within two weeks.
"In an environment where capacity is constrained and demand continues
pretty much unabated, that's a formula for significantly higher prices,"
Stern said.
After an early jump, oil prices eased at midday Thursday on news that
Rita had weakened slightly, to a Category 4 storm. But futures for
natural gas, a key fuel for heating homes and producing electricity,
continued climbing past $13 per 1,000 cubic feet, nearly twice the level
of a year ago.
Inside Texas refineries, crews were conducting what company officials
termed orderly shutdowns of the massive machinery that turns crude oil
into gasoline, jet fuel, heating oil and all the other petroleum
products that consumers and businesses use every day.
After watching the storm's path through the Gulf of Mexico on Wednesday,
Exxon Mobil Corp. decided Thursday morning to shutter the largest
refinery in the country, at Baytown, Texas, and another in Beaumont,
Texas.
That brought to at least 11 the number of Texas refineries hunkered down
for the storm, including the nation's third largest, a BP PLC plant in
Texas City, Texas.
Valero Energy Corp. began closing three refineries and cut production at
two others late Wednesday. Royal Dutch Shell PLC, Marathon Oil Corp.,
ConocoPhillips and Motiva Enterprises Inc., a joint venture between
Royal Dutch Shell and Saudi Refining Inc., also shuttered refineries
that stretched from Houston to the Louisiana border.
In Louisiana, ConocoPhillips closed its Lake Charles refinery.
Unlike New Orleans, Houston is above sea level, but not by much, and
many of the refineries are close to water. A Houston engineering firm,
Dodson & Associates Inc., concluded in a 2001 study for Harris County
that a direct hit by a Category 5 hurricane would flood five big oil
refineries, 36 chemical plants, the Houston port, the Johnson Space
Center and an area twice the size of New Orleans.
Even as a Category 4 hurricane, Rita could cause a huge storm surge --
20 to 25 feet instead of 30 to 34 feet, said Chris Johnson, a water
engineer who worked on the study. Could the government or refineries
have done more to protect themselves?
"We can build a 50-foot concrete wall around a refinery, it just costs a
whole lot of money," Johnson said. "That kind of storm is extremely
rare. At some point, somebody said, 'This is a risk I can live with."
Some experts said the Houston refineries would withstand the storm but
that other parts of the energy supply chain were more vulnerable,
including electricity needed to run the plants.
"It's not so much that the refineries themselves will be damaged,
because we're talking about large plants built of concrete and steel,"
said Stern, the refinery consultant. "Pipelines and power lines have
exposure to the elements."
Fuel supplies were pinched after Katrina because two pipelines that
carry gasoline, diesel and jet fuel from the Gulf Coast to the East
Coast were closed. Those pipelines are open now, but others closed as
Rita approached, including the Explorer Pipeline Co. line that carries
fuel from Port Arthur, Texas, to Hammond, Ind.; the Texas Eastern
Products Pipeline Co. link between refineries in Texas City and New
York; a Centennial Pipeline LLC line between Beaumont and Creal Springs,
Ill.; and a Seaway Crude Pipeline Co. line that takes Gulf crude oil to
Cushing, Okla.
In the Gulf of Mexico, evacuations continued from drilling rigs and oil
and gas platforms. The U.S. Minerals Management Service said Thursday
that nearly three-fourths of the manned platforms had been cleared and
oil production was only at about 8 percent of normal -- a loss of 1.38
million barrels of oil a day.
Since Katrina evacuations began Aug. 26, the storms have cut 28.5
million barrels of oil production, or 5.2 percent of the Gulf's annual
production, the agency said.
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AP Business Writer Brad Foss in Baton Rouge, La., and AP Writer H. Josef
Hebert in Washington contributed to this report.
Source: Associated Press |