Big Oil Braces for Rita


From Platts Oilgram News

The U.S. energy industry, already reeling from the impact of Hurricane Katrina, is now bracing for a second potential catastrophe. Gulf of Mexico oil and natural gas production was being shut in and refineries idled for the second time in a month as Hurricane Rita roared into the region as a dangerous Category 5 storm. Rita hit that status on Sept. 21 with sustained winds of 165 miles per hour. Katrina was also Category 5 at one point.

The U.S. Minerals Management Service, in a daily update originally given to track Hurricane Katrina's devastation a few weeks ago, said crude oil output shut in as of Sept. 21 had risen to 1.097 million barrels per day, or 73.16% of normal Gulf output of 1.5 million barrels. On Sept. 20, MMS put shut-ins at 877,275 barrels per day.

Curtailments of natural gas production also rose, to 4.713 billion cubic feet per day (Bcf/d), or 47.13%, compared with recorded production of 3.482 Bcf/d on Sept. 20. Normal gas output in the Gulf is 10 Bcf/d. MMS said cumulative oil production shut in since Aug. 26, when Katrina approached New Orleans, is now 27.1 million barrels, or 4.95% of yearly U.S. Gulf output of roughly 548 million barrels. Cumulative gas shut in of 125.163 Bcf is 3.43% of yearly Gulf output of 3.65 trillion cubic feet (Tcf).

"SIGNIFICANT." The markets are already responding. In early electronic trading on Sept. 22, October futures for natural gas rose 66 cents, to $13.30, gasoline futures gained 8.89 cents, to 214.20 cents, and heating oil futures rose 3.79 cents, to 207.66 cents. November West Texas Intermediate crude was up 95 cents, to $67.75 per barrel.

Rita's projected path as of early Sept. 21 would put it south of some of the Gulf's major oil-producing areas, according to the U.S. Energy Information Administration. But if the storm remains strong and takes a more northerly path, "the impact could be significant," said the EIA's This Week in Petroleum publication.

With likely landfall in Texas, several major refining centers are in the storm's path, EIA said. Eighteen of Texas' 24 refineries are near the coast, representing 4 million b/d or 23% of all U.S. refining capacity.

MOVING OUT QUICKLY. "While not all this capacity would be affected under any scenario, it does point out how much refining capacity is at risk," the EIA says. With oil markets already tight before Katrina and Rita, "these hurricanes highlight how vulnerable oil markets currently are," the agency says.

Evacuations began on the Texas Gulf Coast, and employees were moving out of the energy-company hub of Houston. Citgo relocated traders from Houston to Tulsa, Okla. BP (BP) traders were being evacuated to Longview, Tex., and ConocoPhillips (COP) moved critical personnel to Bartlesville, Okla.

Houston refineries were also shutting down. BP's massive 446,500 b/d Texas City plant was expected to be fully down by midnight Sept. 21, a spokesman says. "We have a small hurricane team that will be at the site during the storm and a hurricane incident management team working out of the remote unit some distance away," he says.

Controlled shutdowns were also started at ConocoPhillips' 219,700 b/d Sweeny (Tex.) refinery and Shell's 333,700 b/d Deer Park (Tex.) plant. Valero Energy's (VLO) 210,000 b/d Texas City plant was slowed for possible shutdown, as was its 90,000 b/d Houston refinery.

TROUBLES DOWNSTREAM. ExxonMobil (XOM) says staff at its 557,000 b/d Baytown and 348,500 b/d Beaumont (Tex.) refineries were "participating in hurricane preparedness meetings with local emergency response agencies and making preparations for elevated wind and rain." The company says nonessential personnel were being released from the Baytown plant. Flint Hills Resources will shut units at its 305,000 b/d Corpus Christi (Tex.) plants Sept. 22, according to filings with the Texas Commission on Environmental Quality.

The latest refinery outages compound the industry's already troubled downstream scenario, with almost 900,000 b/d of U.S. capacity still off line from Katrina. Plants remaining down from that disaster include Chevron's 325,000 b/d refinery at Pascagoula, Miss.; ConocoPhillips' 250,000 b/d Alliance refinery at Belle Chasse, La.; ExxonMobil/PDVSA's 187,000 b/d Chalmette refinery in Louisiana; and Murphy Oil's 125,000 b/d refinery at Meraux, La.

As for crude supply, the Louisiana Offshore Oil Port (LOOP) suspended offloading on Sept. 21, says a spokesman. The terminal, 18 miles offshore Louisiana, began evacuating personnel ahead of onrushing Rita.

REDUCED RATES. The LOOP spokesman notes that onshore operations pipeline shipments from its terminals are continuing, so refiners were getting crude. LOOP planned to continue operating its LOCAP crude line at normal rates, connecting LOOP to the Shell-operated Capline crude pipeline.

Capline was running at a reduced 30,000 barrel-per-hour or about 720,000 b/d, a spokesman said. The line typically runs 960,000 b/d. "We will continue to operate Capline contingent upon scheduled rates. We have inventory at Clovelly and St. James, La., to continue operating in the short term," he says. The 1.1-mil b/d line carries crude from St. James to Patoka, Ill.

Teppco planned to shut its Seaway crude line on Sept. 22. Seaway carries mostly foreign oil from the Texas Gulf Coast to Cushing, Okla. Teppco's two Texas marine crude offloading terminals associated with Seaway were shut on Sept. 21. The Freeport and Texas City terminals were set to offload remaining vessels and shut down.

NO CONTROL ROOM NEEDED. The 100 million b/d Colonial Pipeline products trunk system from Houston to the East Coast planned to suspend gasoline and distillate scheduling deadlines for Sept. 23 and Sept. 26 ahead of any possible Rita problems. Colonial's decision took the edge off rising spot prices with traders feeling less pressure to secure prompt barrels.

The line reached normal rates Sept. 5 after halting shipments due to refinery and pump station power losses form Katrina. The U.S. Energy Dept. began evacuating nonessential personnel at its Strategic Petroleum Reserve site at Bryan Mound, Tex., ahead of Rita, a source close to Energy told Platts. That facility, from which Energy's Katrina-linked crude sales and loans would be met, has a capacity of 251 million barrels.

The source says Bryan Mound has diesel pumps allowing deliveries to continue. "We don't need the control room for this," he says. Energy has so far not extended its evacuation to the 170 million barrel SPR site at Big Hill near Beaumont, he says, east of Rita's current path. Energy says last week it sold crude from Bryan Mound as well as Big Hill and the 230-million barrel West Hackberry site in Cameron Parish, La., as part of its offer of 30 million barrels of emergency stockpile crude.

Bryan Mound sweet crude is set to be delivered to BP (700,000 barrels via pipeline to Texas City and Jones Creek) and Marathon Petroleum (800,000 barrels via pipeline to Jones Creek). Big Hill sour crude is scheduled for delivery to Shell (200,000 barrels via barge to the Sun marine terminal).

From Platts staff reporters. Platts, like BusinessWeek Online, is a unit of The McGraw-Hill Companies


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