Thursday, September 22, 2005

Gulf Oil Refineries, Rigs Hunker Down

Oil companies began closing Texas refineries Wednesday, threatening the supply of gasoline to the nation's pumps as Hurricane Rita grew more violent and took aim at a stretch of Gulf coast that holds one-fourth of the nation's oil-refining capacity.

Experts say the refineries, nestled in a 300-mile swath from the Louisiana border to Corpus Christi, would recover within a couple days from a glancing blow. But if Rita swamps Houston as Hurricane Katrina did to a three-state area along the Gulf of Mexico last month, they warn, the storm will take more dollars from motorists' wallets and add to the problems of the nation's airlines.

Holiday-UDA Memorabilia - 125 x 125

BP PLC began closing its massive Texas City refinery on Wednesday. Marathon Oil Corp. and Shell Oil did the same at their refineries near Houston. Shell's refinery kept running through the last major Texas hurricane, Alicia in 1983.

"It was a split decision between taking a risk and playing that waiting game of seeing where it's going to land, and being sensitive to employees getting home," said David McKinney, a Shell spokesman. "Once we made the decision, everybody felt good."

Meanwhile in the Gulf of Mexico, Rita began to take a toll on oil production, which hadn't yet fully recovered from last month's Hurricane Katrina. Fresh evacuations that began this week in the eastern waters of the Gulf spread farther west, one step ahead of the storm.

Rita threatens to compound the havoc caused by Katrina, which damaged oil platforms and knocked out refineries, four of which in Louisiana remain dark. They had accounted for about 5 percent of U.S. refining capacity and weren't expected to resume operations anytime soon.

Combined, the damage from Katrina and the precautionary evacuations due to Rita have slashed normal Gulf oil production of 1.5 million barrels a day by 73 percent, the U.S. Minerals Management Service said Wednesday.

Since Katrina evacuations began Aug. 26, the storms have cut more than 27 million barrels of oil production, or 5 percent of the Gulf's annual production, the agency said. Natural gas production was 47 percent below normal on Wednesday.

Oil and gasoline prices could spike again if Rita causes additional disruptions in supply, market analysts say.

Rita became a Category 5, 165-mph behemoth Wednesday and was expected to hit the Texas coast this weekend.

"We're closely watching this hurricane, and we realize its full potential," said Neil Geary, a spokesman at the BP refinery, which produces gasoline, jet fuel and other products.

At first, Shell sent nonessential personnel home and kept parts of the refinery running. By afternoon, the decision was made to shutter the entire plant.

Texas refineries are clustered around Houston, Port Arthur and Corpus Christi, "and any one of those being forced to shut down is pretty bad," said Roger Diwan, who studies oil markets for research and consulting firm PFC Energy in Washington.

Diwan said under the best circumstances — if the hurricane causes no damage to the plants — it would take four to five days for the refineries to resume operations after a shutdown.

"That will reduce supply at a time when we don't need it," he said.

Oil prices climbed more than $1 a barrel on Wednesday, as traders calculated the possibility that Rita could damage oil-industry facilities on land or in the Gulf of Mexico. Heating oil jumped nearly 3 cents to $2.0387 a gallon, while gasoline surged more than 7 cents to $2.0531 a gallon.

Analyst Tom Kloza of research firm Oil Price Information Service called the reaction hysteria — unless Rita scores a direct hit on Texas City or the Houston Ship Channel, which is lined with refineries and chemical plants.

Kloza said that unlike the Louisiana refineries that were knocked out by Katrina, the Houston-area plants are well above sea level and have withstood big storms before. The most likely threat, he said, might be power outages that could halt refineries for two to five days.

Some refiners were keeping their plants running until Rita got closer — it can take 12 to 24 hours or longer to shut down, they said. For example, Exxon Mobil was continuing to operate refineries and chemical plants in Baytown, Beaumont and in Baton Rouge, La.

The Houston area is also home to many chemical plants. Dow Chemical's seaside plant behind a 16-foot levee in Freeport, southwest of Houston, remained operating normally at midday Wednesday, a spokesman said. But Lyondell Chemical Co. began closing two plants, one in a marshy inland area and the other near the Gulf.

With plants scattered along the Texas coast from Houston to Corpus Christi, "No matter where it hit, we were going to have to take some action," said Lyondell spokesman David Harpole.

Out on the Gulf waters, driller Transocean Inc. dragged four moveable rigs in the central Gulf out of the storm's projected path and evacuated about 500 workers from three rigs that are moored to the seabed floor. The Houston company's decision to evacuate was shaped by its experience last month with Katrina.

"Right now, the storm path is south of those (moored) rigs, but that's what happened with Katrina until it made a looping turn and went into the eastern side of New Orleans," said Transocean spokesman Guy Cantwell. "So we're not taking any chances."

BP, which began evacuating workers from platforms off the Alabama coast Sunday, said it was also removing nonessential employees from platforms in the western Gulf, out in front of Rita's path.

Exxon Mobil, Chevron Corp., Shell, a subsidiary of Royal Dutch/Shell Group, El Paso Corp. and others also continued to evacuate employees from many rigs and platforms.

The airline industry is likely to be a loser from Rita. Four of the nation's six oldest carriers are in bankruptcy protection, partly because U.S. carriers will pay $9.2 billion more for fuel this year than last year, according to the Air Transport Association, an airline trade group. Now Rita threatens to send jet fuel prices even higher.

"Even if we can get through this," said the group's chief economist, John Heimlich, referring to Rita, "it comes at a price, which is difficult when you're sitting on the fence of Chapter 11."

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