MARKET WATCHStorm worries push up natural gas, product prices

Sept. 23, 2005
Crude futures prices fell, but natural gas and product prices continued to climb Sept. 22 as a slightly weakened Hurricane Rita neared the upper Texas coast.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 23 -- Crude futures prices fell, but natural gas and product prices continued to climb Sept. 22 as a slightly weakened Hurricane Rita neared the upper Texas coast.

Still, Rita's potential impact on energy markets may far exceed the impact of all previous hurricanes, analysts said.

"Coming on top of the devastation caused by Hurricane Katrina, energy markets are heading for uncharted territory," said Nariman Behravesh, chief economist at Global Insight Inc., an economic analysis firm in Waltham, Mass. "Consumer prices and US economic performance would be severely affected."

Crude oil supplies and prices "will not likely be affected as there are only limited amounts of production in the hurricane's path, and those can be replaced by releases from the Strategic Petroleum Reserve," said Behravesh. However, he said, "Gasoline prices could spike to over $4/gal if 5% more refining capacity is offline for more than 2 weeks."

Four Gulf Coast refineries with a combined capacity of 900,000 b/d—Chevron Corp. in Pascagoula, Miss.; ConocoPhillips, Belle Chasse, La.; ExxonMobil Corp., Chalmette, La.; and Murphy Oil Corp., Meraux, La.—were disabled by Hurricane Katrina, which hit the Louisiana, Mississippi, and Alabama coasts Aug. 29.

More refineries closed
A further 16 refineries shut down in preparation for Hurricane Rita. Department of Energy officials said 15 of those refineries had a total capacity of 5 million b/d, and produced as much as 2.2 million b/d of gasoline, 1.2 million b/d of distillate fuel, and 600,000 b/d of jet fuel.

Refineries that have shut down include: Citgo Petroleum Corp., Lake Charles, La.., 310,000 b/d; ConocoPhillips, Lake Charles, 250,000 b/d; ExxonMobil Corp., Beaumont, Tex., 350,000 b/d; Motiva Enterprises LLC, Port Arthur, Tex., 275,000 b/d; Total SA, Port Arthur, 175,000 b/d; and Valero, Port Arthur, 250,000 b/d.

Also shut down are Shell Oil Co, Deer Park, Tex., 333,700 b/d; Lyondell-Citgo Refining LP, Houston, 270,200 b/d; Astra Oil Co. Inc, a subsidiary of Transcor, Pasadena, Tex., 100,000 b/d; Valero, Houston, 83,000 b/d; ExxonMobil, Baytown, Tex., 557,000 b/d; BP PLC, Texas City, Tex., 437,000 b/d; Valero, Texas City, 209,950 b/d; Marathon Oil Corp., Texas City, 72,000 b/d; ConocoPhillips, Sweeny, Tex., 229,000 b/d; and privately held Flint Hills Resources, Corpus Christi, Tex., 288,00 b/d.

Valero earlier reported that its 340,000 b/d Corpus Christi and 98,000 b/d Three Rivers, Tex., refineries were operating at slightly reduced rates due to feedstock and product storage issues but were expected to continue to operate with skeleton crews (OGJ Online, Sept. 22, 2005).

Calcasieu Refining Co. has a 32,000 b/d refinery in Lake Charles that likely also shut down, but there was no confirmation Sept. 23.

"The impact on the economy will depend heavily on how long refinery output is disrupted," Behravesh said. "A loss of another 5% of refining capacity for an extended period that sends the gasoline price to $4/gal would hit consumer spending power by knocking around 1.5% off real disposable incomes."

With thousands of evacuees stuck along Houston area highways after running out gasoline, the Environmental Protection Agency issued a reformulated gasoline waiver Sept. 21 for Houston and Galveston, allowing distribution and sale of conventional gasoline in this area Sept. 21-26.

Transportation disrupted
Explorer Pipeline, Tulsa, shut down its mainline products system Sept. 22 and suspended deliveries to Houston, Dallas, Tulsa, St. Louis, and Chicago. The pipeline historically has served approximately 10% of demand for liquid fuels in the Midwest. In Houston, Colonial Pipeline Co. was continuing to make product deliveries from inventories at tank farms, "thereby limiting the impact on stub-line deliveries to marketing terminals," said company officials. However, they said Sept. 23 that periodic shutdowns of Colonial's mainlines originating in Houston would occur "as Colonial awaits resupply by operating refineries."

TEPPCO Partners LP said the Seaway Crude Pipeline terminal in Baytown and four lines from Texas City, Houston, Red Bluff, and Baytown were shut down, as well as TEPPCO's product pipeline from Houston to El Dorado. Dixie Pipeline Co.'s propane operations at Mt. Belvieu, Tex., also closed.

The biggest US import terminal, Louisiana Offshore Oil Port off New Orleans, suspended its offshore operations. The Strategic Petroleum Reserve shut down its sites and evacuated employees at Big Hill and Bryan Mound in Texas and West Hackberry, La. Its Bayou Choctaw site farther east in Louisiana was reported still operating but under an alert.

The Lake Charles, La., LNG facilities of Trunkline LNG Co., a unit of Panhandle Energy, also shut down.

The US Minerals Management Service said 634 platforms and 90 drilling rigs in the Gulf of Mexico were evacuated as of Sept. 23, including 83 platforms and 2 rigs to which crews had not returned after Katrina. It said 1.49 million b/d, or 99.1%, of oil production and 7.2 bcfd, or 72%, of natural gas production in the gulf were shut in ahead of the latest storm.

Cumulative gulf production lost since Aug. 26, when Katrina threatened offshore operations, now totals 30.3 million bbl of oil and 140.5 bcf of natural gas, said MMS on Sept. 23.

Energy prices
The October natural gas contract jumped by 19.6¢ to $12.79/MMbtu Sept. 22 on the New York Mercantile Exchange. Gasoline for October delivery shot up by 8.63¢ to $2.14/gal. Heating oil for the same month increased by 0.71¢ to $2.05/gal. However, the November contract for benchmark US light, sweet crudes dipped by 30¢ to $66.50/bbl. The December contract lost 14¢ to $66.65/bbl.

In London, the November contract for North Sea Brent crude slipped by 13¢ to $64.60/bbl on the International Petroleum Exchange. October gas oil climbed by $4.50 to $628.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 38¢ to $59.28/bbl on Sept. 22.

Contact Sam Fletcher at [email protected].