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Few refineries damaged; price spikes unlikely

Hurricane Rita's late shift to the east spared all but a few Texas oil refineries from significant damage, likely sparing consumers a repeat of the gasoline price shocks that occurred after Hurricane Katrina pummeled plants in Louisiana a month ago, energy experts said yesterday.

At least eight refineries in the Houston area that had shut down before the storm as a precaution were working on getting restarted, and two pipelines that serve the Baltimore and Washington metropolitan areas were delivering gas in the wake of the storm, industry sources said.

Several days of lost production will tighten supplies, but experts said the impact at the pump would be limited because demand has dropped since the end of the summer driving season.

"I think [Rita] is going to be a weak source of inconvenience more than anything else," said Dan Lippe, president of Petral Worldwide, an oil industry consulting firm in Houston. That scenario could change, he cautioned, if the damaged refineries stay out of commission for several weeks.

Energy traders sent oil futures down yesterday as industry officials and the Coast Guard reported relatively minor damage to refineries, natural gas facilities and oil platforms in the Gulf of Mexico. Crude oil for November delivery fell $1.09 to $63.10 per barrel on the New York Mercantile Exchange. The exchange opened for a special day of trading because of Rita.

Maryland in particular may see little impact on supplies because retailers have access to gasoline from other states, such as New Jersey, as well as the Caribbean and Europe. Those sources all helped mitigate supply shortages after Katrina.

"All of the gasoline imports heading for the East Coast are still coming this way," Lippe said.

However, several Texas refineries suffered damage that will keep them off-line for weeks, and that situation could cause spot shortages at a time when more than 5 percent of the nation's refining capacity is down because of Katrina. Southeastern states will be particularly vulnerable, Lippe said.

Valero Energy Corp., the nation's largest refining company, reported damage to its Port Arthur, Texas, plant, which refines about 260,000 barrels of oil a day into gasoline. Two cooling towers were downed in the storm, and there was minor flooding and damage to a flare stack that could keep the plant down for at least a few weeks to a month.

Motiva Enterprises Inc. and Citgo Petroleum Corp. plants in Port Arthur and Lake Charles, La., respectively, also suffered damage that could take weeks to repair.

Together, the plants could put another 5 percent of U.S. refining capacity out of commission.

But refineries in Houston, Texas City and surrounding areas - where storm damage was light - were marshaling employees yesterday to get the plants going again, industry sources said. About 15 plants accounting for a quarter of the nation's refining capacity shut down or reduced production before the storm.

Several plants operated by Valero, ExxonMobil Corp., Marathon Oil Corp. and BP PLC could be delivering again in less than a week.

"It appears they all have power," said Andrew Lipow, president of Houston consulting firm Lipow Oil Associates LLC.

Lipow said Rita dropped half an inch of rain on his Houston neighborhood and was no worse than some thunderstorms that routinely hit the area. The refineries in the area need only electricity, natural gas and steam to restart. It appears all three will be back in supply quickly, so many plants could be operating within four days, he said.

"All of the refineries in Texas and Louisiana are well prepared to restart after a storm like this within a few days," said Petral Energy's Lippe. "They have operating procedures for all of this."

The Colonial Pipeline, which carries gas from Houston to New York and points between, was operating despite the temporary shutdown of Texas refineries, according to the Association of Oil Pipe Lines, an industry trade group based in Washington. The pipeline, the primary source of gas for Baltimore, was gathering supplies from refineries in Baton Rouge, La., and other sources.

"So far, the best news is that I've not seen any reports of physical damage to any of our system," said association spokesman Raymond Paul. However, crews were still inspecting parts of the system for damage, and power outages remained a problem yesterday, he said. The pipelines need electricity to operate pumping stations.

Peter Horrigan, president of the Mid-Atlantic Petroleum Distributors Association, said it might take a few days before the storm's impact is known but, in general, gasoline markets seem to be taking the storm in stride.

"The reaction to Rita was moderate compared to what happened after Katrina," he said. The price of regular unleaded spiked to $3.27 a gallon in Maryland in the week after the storm, but had fallen to about $2.85 by Friday.

Lippe said falling demand would help keep prices from spiking again. Demand for gas - typically about 9 million barrels a day - goes up in the summer and then falls by about 300,000 barrels a day after Labor Day. This year, rising prices and the impact of two hurricanes may result in a drop in demand of 600,000 barrels a day or more, he said. That drop will give refineries time to catch up with demand.

"We have enough spare [production] capacity during the winter months to offset the loss of those particular refineries," he said.

paul.adams@baltsun.com

Copyright © 2014, The Baltimore Sun
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