MARKET WATCHEnergy prices fall with input of supplies

Sept. 6, 2005
Energy futures prices dropped sharply Sept. 2 but remained well above the $65/bbl mark as traders locked in profits from the recent hurricane-related rally.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 6 -- Energy futures prices dropped sharply Sept. 2 but remained well above the $65/bbl mark as traders locked in profits from the recent hurricane-related rally prior to the long Labor Day holiday in the US and Canada.

Markets were impacted by the Sept. 2 announcement that the Paris-based International Energy Agency and the European Union Commission unanimously approved a measure to release 2 million b/d of oil from strategic storage for 30 days 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 (OGJ Online, Sept. 2, 2005).

President George W. Bush earlier authorized the US Department of Energy to take crude from the Strategic Petroleum Reserve (SPR) for refiners whose supplies were disrupted by the hurricane (OGJ Online, Sept. 1, 2005).

The US Minerals Management Service said Sept. 5 that 228 platforms and 37 drilling rigs remained evacuated in the Gulf of Mexico with a little over 1 million b/d of oil production and 5.2 bcfd of natural gas production still shut in. From Aug. 26 through Sept. 5, the industry had lost cumulative production from the gulf totaling 11.98 million bbl of oil and 64.09 bcf of natural gas.

Refineries, pipelines recover
Meanwhile, some oil refineries and pipeline systems have returned to full or partial operating capacity, DOE officials reported Sept. 6. Colonial Pipeline Co.'s 5,500-mile pipeline system was reported operating at 100% capacity on Sept. 5 after electrical power was restored to its facilities. Colonial Pipeline, based in Alpharetta, Ga., delivers 100 million gal/day of gasoline, heating oil, aviation fuel, and other products throughout the southern and eastern US.

Plantation Pipe Line Co., Houston, said its mainlines were operating at full capacity with a throughput of 620,000 b/d after electric power was restored to its primary pump stations. The Plantation system consists of 3,100 miles of pipeline serving 120 terminals. It transports gasoline, diesel, and jet fuel to major metropolitan areas in the Southeastern US.

The Louisiana Offshore Oil Port was operating virtually at full capacity Sept. 5, although power had not been restored at the Clovelly, La., storage facility. "LOOP expects to be at full capacity when Fourchon gets power, which should occur in about 7 days," DOE reported. LOOP currently is delivering crude oil to the Capline pipeline, which is reported to be running at 960,000 b/d, or 80% capacity.

The Association of Oil Pipelines reported Dixie Pipeline Co.'s propane line is at 50% of normal capacity, or 200 million gal/day.

Refining capacity
In testimony Sept. 6 before the Senate Committee on Energy and Natural Resources, Bob Slaughter, president of the National Petrochemical and Refiners Association, said, "Although some of the affected refineries may restart and return to capacity or near-capacity levels this week, there are indications that several facilities may be out of service for a longer period."

DOE officials said Sept. 5 that Motiva Enterprises LLC's 226,500 b/d refinery in Norco, La., suffered limited damage from the hurricane, but workers were making repairs, and the facility might restart by midweek. Meanwhile, Motiva's 235,000 b/d refinery in Convent, La., was reported to have restarted and "may be fully operational in a few days."

Marathon Petroleum Co. LLC's 245,000 b/d refinery in Garyville, La., was one of the first refineries to restart and was expected to be fully operational by Sept. 6, DOE reported. Marathon's 222,000 Catlettsburg, Ky., previously was operating at reduced capacity but was expected to return to full capacity Sept. 6.

Valero Energy Corp. said Sept. 6 that its two newly acquired refineries in Memphis, Tenn., and Lima, Ohio, as well as its 80,000 b/d Krotz Springs, La., refinery, "all returned to normal operations this weekend" after DOE earlier approved the company's request for the loan of 1.5 million bbl of SPR crude. As for its 185,000 b/d St. Charles, La., refinery, Valero reported, "Utilities have been recommissioned, and we are now anticipating a midweek start-up."

DOE reported no power and major damage to ConocoPhillips' 247,000 b/d facility at Belle Chasse, La.; no power and water damage to ExxonMobil Corp.'s 187,000 b/d Chalmette, La., refinery; and major damage but power restored at Chevron Corp.'s 325,000 b/d Pascagoula, Miss., unit. Murphy Oil Corp.'s 125,000 b/d refinery at Meraux, La., was still without power Sept. 5; however, DOE said workers were assessing damage and had repaired a leaking crude oil tank while water was receding.

Officials at DOE said they were unable to contact and therefore had no information on the status of Shell Chemical LP's 55,000 b/d refinery at St. Rose, La., or its 80,000 b/d Saraland, Ala., facility.

ConocoPhillips' 239,400 b/d Lake Charles, La., refinery was said to be returning to full capacity Sept. 5, while ExxonMobil's 493,500 b/d Baton Rouge refinery is now fully operational with crude borrowed from SPR.

Katrina approached within 200 miles but inflicted no damage nor disrupted operations of the Gulf Gateway Energy Bridge deepwater LNG port or the regasification vessel Excellence, which was discharging natural gas into the Sea Robin and Blue Water pipeline systems at the time of the storm, said Excelerate Energy LLC., The Woodlands, Tex.

Energy prices
On Sept. 2, the October contract for benchmark US light, sweet crudes fell by $1.90 to $67.57/bbl on the New York Mercantile Exchange. The November contract was down by $1.82 to $68.16/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., declined by $1.90 to $67.58/bbl. Gasoline for October delivery plunged by 22.53¢ to $2.18/gal, marking the first price decline for that commodity since Hurricane Katrina hit the Gulf Coast. Heating oil for the same month fell by 10.74¢ to $2.09/gal. The October natural gas contract slipped by 6.6¢ to $11.69/MMbtu on NYMEX.

"In the 6 weeks prior to Hurricane Katrina, year-over-year gas storage comparisons saw a remarkable shift from over 200 bcf surplus of gas storage to a 50 bcf shortfall of gas storage relative to the same time last year," said J. Marshall Adkins, an analyst in the Houston office of Raymond James & Associates Inc. "Since Hurricane Katrina has arrived, the US has already lost another 65-plus bcf of total gas supply, and that number is sure to grow over the coming months."

Adkins said, "We would expect the current 7-8 bcfd of shut-in gas to improve but not fully recover for at least 6 months. In fact, we believe that there is a high likelihood that the US Gulf could see anywhere from 1-3 bcfd removed from the gas supply stream over the next 6 months."

The reduced supply will be offset somewhat by reduced demand as a result of higher fuel prices and storm damage to the electric generation infrastructure. Nevertheless, Adkins said, "Katrina will have a very meaningful, lasting, positive impact upon US natural gas prices, and we would expect natural gas to remain near the 6:1 ratio with crude for the foreseeable future."

In London, the October contract for North Sea Brent crude fell by $1.66 to $66.06/bbl Sept. 2 on the International Petroleum Exchange. Gas oil for September dropped $16.75 to $638.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes fell to $59.22/bbl on Sept. 5 from $60.73/bbl on Sept. 2.

Contact Sam Fletcher at [email protected]