MARKET WATCHEnergy prices rebound; IEA releases crude

Sept. 2, 2005
Energy prices rebounded Sept. 1 as a storm-battered US Gulf Coast oil and gas industry struggled to resume operatations.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 2 -- Energy prices rebounded Sept. 1, recouping much of the previous day's losses in most cases, led by a rally in the natural gas futures market following a bullish report on US gas storage.

On Sept. 2, the Paris-based International Energy Agency (IEA) and the European Union Commission unanimously approved a measure to release 2 million b/d of oil from strategic storage for 30 days. Member countries will contribute emergency oil stocks available to help offset US loss of 1.5 million b/d of oil production and 2 million b/d of refining capacity damaged by Hurricane Katrina.

For the first time in at least a decade, the US government also asked European governments to release some of their emergency gasoline reserves, said analysts in the Houston office of Raymond James & Associates Inc. "IEA, which coordinates petroleum stockpiles across the Organization for Economic Cooperation and Development, is in consultations with its European members about the US request [for gasoline]. The German and Spanish governments have already expressed support for the request," Raymond James reported.

The US Strategic Petroleum Reserve (SPR) contains only crude oil. But Europe has 50 million bbl of emergency gasoline in storage. The US uses 10 million b/d of gasoline, and US gasoline production is down by 1 million b/d from normal levels because Hurricane Katrina made inoperable nine major refineries on the Gulf Coast.

The US Energy Information Administration (EIA) on Sept. 1 reported the injection of 58 bcf of natural gas into US underground storage during the week ended Aug. 26. That was down from 60 bcf the previous week and 81 bcf during the same time a year ago (OGJ Online, Sept. 1, 2005).

US refining
In Washington, EIA said it appears Katrina may have a more lasting impact on US refining and distribution of petroleum products than on crude production. "That news is varied, with some refineries likely able to restart their operations within the next 1-2 weeks, while others will likely be down for a more extended period, possibly several months in length," officials said. Hurricane Ivan, which struck the Gulf Coast in September 2004, apparently "had a lasting impact on crude oil production in the Gulf of Mexico," said EIA officials.

EIA on Sept. 1 said Hurricane Katrina idled about 2 million b/d of refining capacity through plant shutdowns or reduced operation, cutting gasoline supply by 1 million b/d.

The US Department of Energy said Sept. 1 it would loan 3 million barrels of sweet crude oil and 3 million bbl of sour crude from SPR to ExxonMobil Corp. DOE officials are reviewing other loan requests from refiners.

Valero Energy Corp. was notified that DOE approved its request for the loan of 1.5 million bbl of SPR crude for two newly acquired refineries in Memphis, Tenn., and Lima, Ohio, as well as for its Krotz Springs, La., refinery. "That should bring our Krotz Springs facility to full rates by this Sunday," said company representative Mary Rose Brown.

Valero said electric power was returned Sept. 1 to its 260,000 b/d St. Charles refinery, which had been shut down since before Katrina made landfall Aug. 29. "We also have had about 120 employees (out of 550) return to work (including all complex managers), and a crew of 20 employees and contractors from our Corpus Christi and Three Rivers refineries has arrived and can now begin to assist with the needed repairs at the refinery," Brown said.

Marathon Petroleum Co. LLC plans this weekend to restart its 245,000 b/d refinery in Garyville, La. It will be "the biggest refinery to resume operations after the hurricane," officials said. Motiva Enterprises LLC said its 230,000 b/d plant in Convent, La., could restart in a week.

As of Sept. 1, the US Minerals Management Service said 423 platforms and 64 rigs remained evacuated in the Gulf of Mexico, with 1.4 million b/d of oil and 7.9 bcfd of natural gas still shut in. Cumulative production lost Aug. 26-Sept. 1 because of Hurricane Katrina totaled 7.4 million bbl of oil and 42.1 bcf of natural gas.

EIA said Katrina might have damaged four natural gas processing facilities on the Gulf Coast with a combined capacity of 5.5 bcfd, the equivalent of almost 10% of national gas production. However, officials said those outages are not expected to last more than a few weeks, with many units expected on line within a few days.

"Even if platforms and pipelines are either unaffected or readily restored to service, the gas often can't flow to market without treatment," officials said. "In 2003, the latest year with complete data, almost three-fourths of total US-marketed gas production was processed prior to delivery to market."

Tommy Martinez, executive director of the Louisiana Offshore Oil Port, said unloading of tankers at that facility could begin Sept. 2. LOOP shut down operations Aug. 27 ahead of the storm but has since resumed deliveries from storage to ExxonMobil's Baton Rouge refinery. A pipeline controlled by the port connects with the Capline pipeline system in St. James, La.

Capline, which carries crude from the Gulf Coast to Midwest refineries, returned to service Sept. 1 at a reduced rate. Plantation Pipe Line Co. and Colonial Pipeline Co. earlier opened at reduced capacity two major product pipelines from the Gulf Coast to the East Coast (OGJ Online, Sept. 1, 2005).

However, Mississippi River traffic, including crude shipments to many area refineries, remains halted for "many, many days," said the US Coast Guard.

The director of Port Fourchon, La., the low-lying coastal base for three quarters of support services for deepwater oil and gas facilities in the Gulf of Mexico, said Sept. 1 that facility might soon get its inland waterway system open. The port had already reestablished offshore access Aug. 31. "Once the port is fully open, equipment and other supplies will be able to get to oil and gas platforms in the Gulf of Mexico," said EIA officials.

Energy prices
The October contract for benchmark US light, sweet crudes gained 53¢ to $69.47/bbl Sept. 1 on the New York Mercantile Exchange. The November crude contract climbed by 57¢ to $69.98/bbl. On the US spot market, West Texas Intermediate increased by 53¢ to $69.48/bbl. Gasoline for October delivery climbed by 15.37¢ to $2.41/gal on NYMEX. Heating oil for the same month escalated by 12.2¢ to $2.20/gal. The October natural gas contract jumped by 28.5¢ to $11.76/MMbtu.

In London, the October contract for North Sea Brent crude was up by 70¢ to $67.72/bbl on the International Petroleum Exchange. The September gas oil contract rose by $16.75 to $655.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 27¢ to $61.37/bbl on Sept. 1.

Contact Sam Fletcher at [email protected]