Refinery Capacity Takes a Dive

Sep. 23–Nearly a quarter of the country’s refinery capacity was shutting down Thursday in preparation for Hurricane Rita, according to the Department of Energy.

Five percent of the country’s capacity was already down because of damage caused by Hurricane Katrina. But an additional 22 percent of capacity is down at least temporarily as refineries in the path of Hurricane Rita ceased operations and released their employees. In total, capacity capable of producing 5 million barrels a day of petroleum products, including 2.5 million barrels of gasoline, is not available.

“This could send prices higher, but for how long will depend on how long it will take them to get running again,” said Douglas MacIntyre, an analyst for the federal Energy Information Administration.

If the refineries that suspended operations this week are down for just four days, that would mean 10 million barrels of gasoline — 420 million gallons — that would be off the market. In addition, there were reports that some pipelines were preparing for the hurricane by closing or scaling back operations.

Explorer Pipeline, which delivers fuel to the Midwest, stopped operations so its employees in the Houston area could be evacuated.

Such developments would normally roil wholesale gasoline markets. But wholesale prices in the Midwest, according to Bloomberg Business News, were up only 4 cents, and in New York by 7 cents a gallon. On the New York Mercantile Exchange, a gallon of unleaded fuel was up 4 cents.

“The market shrugged all that off and behaved very mildly,” said Lewis Adam, president of Admo Energy in Kansas City, a company that helps companies manage the risks of petroleum prices.

He said one reason was that many traders after Hurricane Katrina bought gasoline that turned out to be overpriced, leaving them with large potential losses when wholesale prices plummeted.

This time they are waiting to determine how serious the damage will be to refineries and other infrastructure, such as pipelines and rigs.

Concerns about Hurricane Rita have pushed wholesale gasoline prices up in the past week from their post-Katrina lows, but the increases have been more deliberate than the post-Katrina spike. The higher prices have shown up at Kansas City area gas pumps the past few days, pushing a gallon of regular unleaded on the Missouri side up 10 cents Wednesday and another dime Thursday, to an average $2.60. Prices on the Kansas side usually are a few cents higher.

Also helping hold off a big price spike was the hope that the worst of Hurricane Rita would miss the complex of refineries in the Houston area, which have capacity of 2.3 million barrels per day. The landing of Hurricane Rita continues to drift east, according to the National Hurricane Center, and Thursday’s projection had the eye landing just east of Houston. If that trend continued, Houston area refineries could escape serious damage, although problems such as power outages could delay resumption of operations.

There are also other refineries that may lie in the hurricane’s path. There’s a large refinery in Beaumont, Texas, and farther east is Port Arthur, which has three refineries with a total capacity of 775,000 barrels a day. Still farther east on the coast is Lake Charles, La., which has two refineries with a total capacity of 563,000 barrels a day.

There also could still be an impact on natural-gas and oil rigs in the Gulf of Mexico. The amount of natural-gas production that has been shut down increased from 45 percent Wednesday to 70 percent Thursday. The suspension of gulf crude oil production increased from 70 percent to 92 percent.

It remains to be seen how much of that production will quickly be restored after the hurricane passes. Some production lost to Hurricane Katrina still hasn’t returned.

Crude oil prices declined Thursday, closing at $66.46 per barrel of West Texas Intermediate, down 17 cents. Natural-gas prices on the New York Mercantile Exchange hit a high for the past year, closing at $12.94 per 1,000 cubic feet, up 4 cents.

Natural-gas prices are more than double what they were a year ago, and Hurricane Rita could help keep them up because of the importance of the Gulf of Mexico natural-gas production.

“Natural gas is a big concern,” said James Williams, an economist for WTRG Economics.

Meanwhile, there was more pressure Thursday to investigate whether there was price gouging after Hurricane Katrina. The Gas Price Tax Force, a group of several congressional representatives led by Rep. Roy Blunt of Missouri, is asking the Federal Trade Commission to turn over some information about its investigation into gas prices.

“We understand supply and infrastructure issues related to Hurricane Katrina, as well as large global demand for crude, are significant factors contributing to high gas prices,” Blunt said in a written statement. “However, we also have a responsibility to examine industry practices to ensure Americans don’t fall victim to price gouging.”

Industry officials testifying before a Senate committee Wednesday said there had not been price gouging.

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