Sam Fletcher
Senior Writer
HOUSTON, Sept. 26 -- Energy prices fell Sept. 23 as Hurricane Rita began to veer away from the refinery complexes at Texas City and Houston toward those at Beaumont and Port Arthur, Tex., and Lake Charles, La.
Although a Category 5 hurricane rated as the third worst ever to hit the US as it ripped through the oil and natural gas producing area of the central Gulf of Mexico, Rita had deteriorated to a Category 3 storm by the time its eye made landfall near the Texas-Louisiana border in early Sept. 24.
As of Sept. 25, the US Minerals Management Service reported 666 platforms and 92 rigs evacuated in the Gulf of Mexico, with shut-in production of 1.5 million b/d of crude and 8 bcfd of natural gas. That amounts to all of the normal crude production and 80% of the natural gas production from the gulf. By comparison, at its peak Katrina shut in 95% of the oil and 85% of the gas production in the gulf, much of which had not been restored before Rita struck 3 weeks later.
Moreover, the cumulative amount of production lost since Aug. 26 when Katrina first threatened oil and gas operations in the US sector of the Gulf of Mexico totaled 33.3 million bbl of crude and 157 bcf of natural gas through Sept. 25.
Rita was the fifth storm to disrupt gulf production this year. Hurricane Dennis disrupted production of 5.29 million bbl of oil and 23.3 bcf of gas; Tropical Storm Cindy, 312,127 bbl of oil and 1.7 bcf of gas; and Hurricane Emily, 240,024 bbl of oil and 1.58 bcf of gas.
"Although demand destruction from lost industrial consumption has offset shut-in production from the gulf, we believe this will only occur in the interim," said Ronald J. Barone, a managing director of equity research with UBS Securities LLC, New York. "As Louisiana begins to rebuild, we expect consumption to increase, eventually approaching pre-Katrina levels. However, we expect 1-1.5 bcfd of production (2-3%) to be permanently lost. Given that demand for natural gas has already begun to outstrip production, a 2-3% decline in production could have a long-term upward impact on pricing."
In addition, Barone said, industry officials and regulators are now looking into the safety of LNG terminals. "Many are concerned about the ability of LNG facilities to withstand a natural disaster and, for that matter, about having so much gas infrastructure concentrated in the gulf in the event that the unthinkable happens," he said. "Some feel that having LNG terminals in other areas such as the Northeast [US] and California would make more sense."
Storm damage
Rita may prove to have been less destructive than Katrina, at least to oil and gas operations, since relatively little damage was reported over the weekend as workers began returning to Gulf Coast facilities. Of the 20 refineries shut down ahead of the latest storm, 9 with a total 2.3 million b/d of distillation capacity are in the Houston and Texas City areas and unlikely to have received much damage (OGJ Online, Sept. 25, 2005).
Citgo Petroleum Corp. employees were returning to work Sept. 23 to restart the company's 156,750 b/d Corpus Christi refinery since it was well out of the storm's path by then. Assessment of Citgo's 336,800 b/d Lake Charles facility was still under way Sept. 25, "while operations at the Corpus Christi refinery are nearing normal levels of operation," officials said.
Motiva Enterprises LLC said its 285,000 b/d refinery in Port Arthur sustained wind damage, "including downed power lines and cooling-watertower damage" but apparently no flooding. Over the weekend, Shell Oil Co. workers were inspecting the 333,800 b/d Shell Deer Park refinery but reported apparently no serious damage.
Valero Energy Corp., San Antonio, said its 255,000 b/d refinery in Port Arthur sustained "significant damage" to two cooling towers and a flare stack but apparently no flooding. In a Sept. 26 update, it reported extensive electrical power pole damage and extensive insulation damage. "Power is not expected to be restored to the area for about 1 month. However, we are beginning to implement the needed repairs and are capable of generating about 80% of our own power at our Port Arthur refinery, so we continue to expect to restart this refinery within 2-4 weeks," said a company representative.
Valero earlier said workers were in the process of restoring power to its 83,000 b/d refinery in Houston and its 210,000 b/d Texas City facility. "We are circulating oil at our Houston and Texas City refineries in anticipation of starting up a few units late today or early tomorrow morning. We still expect to be back to normal operations in Houston by midweek. At Texas City, we will not receive hydrogen from our third-party provider until Wednesday, but we still hope to be back to normal operations later this week," a company spokeswoman said.
Valero reported its 140,000 b/d Corpus Christi refinery and 97,000 b/d Three Rivers facility are running at near capacity. It earlier reported that its 80,000 b/d Krotz Springs, La., refinery had power but was still running at minimum rates due to pipeline outages.
ConocoPhillips said Sept. 25 its 239,400 b/d Lake Charles refinery was without electrical power but not flooded, while its 215,650 b/d Sweeny, Tex., refinery was undamaged by the storm and was in the process of restarting. ConocoPhillips also reported no visual damage to its offshore facilities in the Gulf of Mexico and no serious damage to other onshore facilities.
ExxonMobil Corp.'s initial assessment indicated no significant damage to its 285,000 b/d Beaumont refinery. However, it is still being inspected and priorities include restoring water and electricity to run the facilities, officials said.
Other refineries in areas most heavily damaged by Hurricane Rita include plants operated by Total SA, 233,500 b/d, in Port Arthur, and Calcasieu Refining Co., 30,000 b/d, Lake Charles.
There has been no report about status of the Trunkline LNG Co. LLC terminal in Lake Charles.
Meanwhile, four refineries disabled by Katrina—three in Louisiana and one in Mississippi with a total of nearly 900,000 b/d of capacity—are thought still to be weeks away from restart.
Offshore, GlobalSantaFe Corp. said two of its drilling rigs, the GSF Adriatic VII and GSF High Island III, could not be found in a Sept. 25 air search. However, it reported no signs of major damage to its other rigs in the Gulf of Mexico.
Chevron Corp. reported its Typhoon tension leg platform (located in 2,000 ft of water in the Green Canyon area 165 miles south-southwest of New Orleans) was severed from its mooring and suffered severe damage during the storm. However, it has been located and is being secured, officials said.
Gasoline shortages
Local officials reported hundreds, perhaps thousands, of refugees' automobiles were abandoned on Houston highways after they broke down or ran out of fuel along traffic-clogged evacuation routes Sept. 22-23. Fuel supplies in the Houston area were still difficult to find over the weekend.
ExxonMobil reported 14 retail gasoline stores open on primary Gulf Coast evacuation routes Sept. 25 and said it would continue to open more "as personnel and fuel become available. However, at times, due to high demand, some of these stores may be out of fuel for short periods." The company delivered 531,000 gal of gasoline to those 14 stores on Sept. 24—"the equivalent of the normal daily demand for the entire Houston market," it said.
Valero said its retail sales jumped by 87% last week as Gulf Coast residents rushed to get fuel ahead of the storm. On Sept. 23, the company said it was opening Gulf Coast retail outlets "as far west as Port Lavaca," Tex. "Most of our Corpus Christi stores, which had closed after the mandatory evacuation order was issued [by local elected officials], have now reopened, and most of our employees have returned," said a company representative.
As evacuation efforts peaked Sept. 23, Valero was operating 50 gasoline outlets in Houston, with the rest closed "because they have no fuel or no employees available as a result of the evacuation process." The 40 active stations eventually closed "as fuel supplies run out and employees continue to evacuate." Even in San Antonio, 200 miles west of Houston, Valero reported "brief outages at stores before fuel trucks can replenish our tanks." However, the company said Sept. 26, "We now have 202 of 231 Houston area stores open and 112 of these currently have fuel for sale. We will continue refueling efforts as available tanker trucks and terminal fueling conditions allow."
Shell Oil Co. and Motiva Enterprises LLC said both the North Houston and Pasadena fuel distribution terminals were again fully operational Sept. 24 after closing Sept. 23. Shell and Motiva shipped 270,000 gal of gasoline to Shell stations in Houston and the surrounding communities. Shell and Motiva mobilized trucks and drivers to provide fuel to the primary cities housing Gulf Coast evacuees, including Dallas, Austin, and San Antonio. Company officials said most stations have sufficient supply.
Chevron's products terminal at Galena Park, Tex., was closed prior to the storm but reopened to tanker truck service Sept. 25.
Energy prices
Still, the average price for the November contract for benchmark US light, sweet crudes fell by $2.31 to $64.19/bbl Sept. 23 on the New York Mercantile Exchange. The December contract lost $2.13 to $64.52/bbl. Heating oil for October delivery plunged by 9.68¢ to $1.95/gal, while gasoline for the same month dropped 5.38¢ to $2.09/gal. The October natural gas contract plummeted by 46.6¢ to $12.32/MMbtu.
In London, the November contract for North Sea Brent crude declined by $2.16 to $62.44/bbl on the International Petroleum Exchange. Gas oil for October fell by $39.25 to $589/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes fell by $1.57 to $57.71/bbl Sept. 23.
Contact Sam Fletcher at [email protected].
