MARKET WATCH: Tighter market pushes up energy prices

Sept. 27, 2005
Energy commodity prices rebounded somewhat Sept. 26 as traders realized that Hurricane Rita has tightened supplies.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 27 -- Energy commodity prices rebounded somewhat Sept. 26 as traders realized that, while Hurricane Rita inflicted little apparent damage on Gulf Coast oil and gas facilities, it nevertheless has tightened supplies.

Meanwhile, workers are still assessing damage to the petroleum industry infrastructure in Rita's wake. US Minerals Management Service officials said 758 offshore platforms and 101 drilling rigs in the Gulf of Mexico were evacuated as of Sept. 26. Shut-in production amounted to 1.5 million b/d or virtually all of the crude, and 7.8 bcfd or 75.4% of the natural gas normally produced from the Gulf of Mexico.

Since Aug. 28 when Hurricane Katrina threatened offshore operations in the gulf, cumulative production of 34.8 million bbl of crude and 163.9 bcf of natural gas has been lost to the two storms within 1 month.

Stone Energy Corp. in Lafayette, La., reported a flyover of its offshore properties showed that the South Marsh Island 108 D platform and Vermilion Block 255 A and B platforms were lost to the latest hurricane. Stone operates 115 structures in the Gulf of Mexico, with net flow of 18 MMcfd of gas equivalent. The company is evaluating alternatives for the lost platforms, including utilizing existing platforms.

Gulfport Energy Corp., Oklahoma City, reported damage in both its Hackberry field in Cameron Parish and its West Cote Blanche field in St. Mary Parish, La.

El Paso Corp. is assessing damage and beginning to repair onshore and offshore facilities and pipelines in Texas and Louisiana. It also is reassessing possible new damage in parishes south of New Orleans and offshore facilities in the Gulf of Mexico that were affected by Hurricane Katrina.

Refineries affected
Moreover, some 4 million b/d of Gulf Coast refining capacity is shut down, including four refineries knocked out by Katrina. That amounts to 2 million b/d of gasoline, 1 million b/d of distillate fuel, and 500,000 b/d of jet fuel not produced as long as those refineries are shut down, Department of Energy officials said Sept. 26.

Industry sources reported 20 Gulf Coast refineries shut down ahead of Rita, while DOE listed 16.

DOE on Sept. 26 said: "Three refineries (Citgo in Lake Charles, Lyondell Citgo in Houston, and ConocoPhillips in Sweeney, Tex.) have reported that they have already begun to restart. Three other refineries in the Houston area are expecting to restart soon, while other refineries have reported minimal damage and may also not be too far away from restarting. The refineries in the Port Arthur area, where the hurricane struck most directly, may take longer to restart."

Most of the idle refineries are expected to be working again within a few days. In Port Arthur, however, Valero Energy Corp.'s 250,000 b/d refinery and Total's 233,000 b/d refinery will be shut for 2-4 weeks, officials said. Officials earlier said the four refineries damaged by Katrina may not come back on stream until next month and may take longer to return to prestorm capacities.

Lyondell Chemical Co. said facilities most distant from the hurricane's path were the first to return to operation, including its Corpus Christi ethylene plant and high-density polyethylene units at Matagorda and Victoria, Tex. The 268,000 b/d Houston refinery, a joint venture between Lyondell and Citgo Petroleum, is ramping up production. The company's ethylene glycol plant at Beaumont, closest to Rita's landfall, is expected to be out of service for possibly a month.

With many refineries temporarily closed, several pipelines shut down because of lack of product to transport. However, DOE said oil pipeline operators were in the process of getting personnel to facilities for safety inspections. "If no damage is detected, the primary requirement to resume normal operations will be reliable access to the electric grid and access to product to transport," DOE said.

Plantation Pipe Line Co. reported normal operations throughout the storm and expects to continue transporting 600,000 b/d of gasoline, distillates, and jet fuel to the Southeast via its 3,100-mile pipeline system, which runs from eastern Louisiana to Washington, DC. Hurricane Rita did not affect most of the refineries that feed products to Plantation. Plantation is owned 51% by Kinder Morgan Energy Partners LP and 49% by ExxonMobil.

More than a dozen gas-processing plants are offline because of flooding, lack of supplies, inability to move stored liquids, or safety precautions, said DOE. "The processing plants known to be not operating have a combined capacity of more than 10 bcfd, but this number does not reflect actual flows before Hurricane Katrina and Hurricane Rita," its officials noted.

With Gulf Coast refineries and fractionators discontinuing operations, the result is a lack of natural gas liquids take-away capacity, with some natural gas gathering and processing facilities in West and Central Texas, and southeast New Mexico being shut-in, DOE said.

Preliminary assessment of Trunkline LNG facilities in Lake Charles, La., indicated its infrastructure is intact, but the terminal will remain shut down, pending inspection. Trunkline LNG suspended ship unloading and send-out at the LNG terminal Sept. 22.

Magellan Midstream Partners LP, Tulsa, reported only minor damage to its five marine terminals in the Texas and Louisiana Gulf Coast region and continues to assess dock damage at the Marrero, La., facility resulting from last month's Hurricane Katrina.

The Strategic Petroleum Reserve reported no apparent damage to its Bryan Mound, Tex., and Bayou Choctaw, La., sites. However, the Big Hill, Tex., site received some minor damage. Roads to it and the West Hackberry, La., sites were flooded, preventing entry, officials said.

US Coast Guard reopened ports of New Orleans and Houston and other waterways in and around Texas, Louisiana, and the Gulf of Mexico with some restrictions on traffic. Intracoastal Waterway is open from mile marker 20 eastward.

Energy prices
The November contract for benchmark US sweet, light crudes rose by $1.63 to $65.82/bbl on the New York Mercantile Exchange Sept. 26. The December contract increased by $1.46 to $65.83/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.46 to $65.83/bbl. Heating oil for October delivery jumped by 10.96¢ to $2.06/gal. Gasoline for the same month gained 4.36¢ to $2.13/gal. The expiring October natural gas contract increased by 11.6¢ to $12.44/MMbtu as traders covered excess open sales contracts after a sharp sell-off early in that session, said analysts at Enerfax Daily. NYMEX said force majeure continued for September gas deliveries at Henry Hub, La., with that delivery point still flooded.

In London, the November contract for North Sea Brent crude increased by $1.49 to $63.93/bbl on the International Petroleum Exchange. Gas oil for October was up by $15.75 to $604.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 80¢ to $56.91/bbl on Sept. 26.

Contact Sam Fletcher at [email protected].