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Risks increasing at hard-working US refineries

July 29, 2005

By Richard Valdmanis

NEW YORK (Reuters) – The risk of accidents at oil
refineries in the United States is on the rise as plants,
running near full-throttle, get worn down ahead of seasonal
maintenance in the fall, energy analysts said on Friday.

Fires broke out at two major oil refineries in the Gulf
Coast on Thursday, including BP’s beleaguered refinery in Texas
City. Experts said more problems could arise after months of
soaring refining activity.

“This time of year you always have things blow up,” said
Bill O’Grady, analyst at A.G. Edwards in Chicago. “Refineries
are getting stretched. Its part of the landscape.”

Refinery outages can push up prices for gasoline heating
oil and crude by cutting into stockpiles in America, the
world’s largest energy consumer.

Oil companies typically perform maintenance on refineries
in the spring and fall, when demand is low. They generally run
them at high utilization rates in the winter and the summer
when demand is higher.

This summer, refineries have been running consistently over
90 percent of capacity to meet robust gasoline demand and to
top off distillates stockpiles, like heating oil, ahead of the
Northern Hemisphere winter.

“Refineries like to run full-out at this time of the year,”
said Jim Ritterbusch, analyst at Ritterbusch & Associates.
“We’re between two periods of seasonal maintenance, trying to
build up distillates and keep up with gasoline demand.”

“The good news is that these high refinery runs have given
us a distillate supply surplus. But we’ve seen erosion in the
gasoline surplus, and that surplus could be erased by mid to
late August, especially with refinery snags.”

BP said on Friday it was investigating the cause of a fire
in a hydrotreater unit at its Texas City, Texas, refinery
Thursday that shut 60,000 barrels per day of production.

The Texas City refinery, the third largest in the United
States, was the site of a fatal explosion in late March that
killed 15 workers and injured 170 others.

Also on Thursday, Murphy Oil reported a fire at its Meraux,
Louisiana, refinery, forcing shut an 18,000 bpd kerosene
hydrotreater for an undetermined amount of time.

While neither incident was likely to have a significant
impact on U.S. gasoline or distillate inventories, market
watchers said they underscored the vulnerability of refineries
at this time of year.

“We’re at a stage now where if refineries are not running
all out, we can’t keep up with demand. We don’t have any supply
cushion to help cushion increases in demand,” said Peter
Beutel, analyst, Cameron Hanover.

U.S. gasoline and distillate supplies are in or above the
average range for this time of the year, but demand has been
holding strong in the face of high prices, keeping strain on
the market.

Over the past four weeks, gasoline demand has averaged 1.6
percent higher than last year, while distillate demand has
averaged 3.6 percent higher, according to government figures.




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