August 29, 2005

U.S. oil firms fear worst as Katrina rips in

By Erwin Seba and Mark Babineck

HOUSTON (Reuters) - U.S. Gulf of Mexico energy companies
were contemplating their worst fears on Sunday as Hurricane
Katrina, a potentially catastrophic storm, charged through
offshore production areas toward southeast Louisiana.

"We're just going to have to wait and see what's left,"
said Chevron Corp. spokesman Matt Carmichael.

At least 42 percent of daily Gulf of Mexico oil production,
20 percent of its daily natural gas output and 8.5 percent of
national refining capacity was shut on Sunday, producers and
refiners said.

The Gulf accounts for about one-quarter of U.S. oil and
natural gas production.

U.S. oil futures shot up by $3.81 to $69.94 a barrel on
Sunday after briefly hitting a record high $70.80 in Asian
trade. Unleaded gasoline futures spiked by 22 cents a gallon to
a record high $2.15.

Likewise, heating oil futures shot to $2.0060, up 16.74
cents from Friday's close.

At least 633,000 barrels of daily crude production out of
an daily average of 1.5 million barrels was shut on Sunday,
although the total likely was higher.

The amount of known shut production is expected to increase
on Monday because several companies do not release production
cuts to the media, but only provide them to the U.S. Minerals
Management Service, which was moving its Gulf Coast operations
from New Orleans to Houston.

The MMS is expected to release a report on Gulf production
cuts on Monday.

At least 2.4 billion cubic feet out of an average 12.3
billion cubic feet of Gulf daily natural gas output was shut as
of Sunday, according to figures provided by the companies.

Natural gas pipeline companies did not provide any specific
amounts for reduced shipments from the Gulf, but said they were
fulfilling contracts from natural gas stored onshore as
production offshore was cut.

"It's significant," said Gretchen Krueger with Texas
Eastern pipeline.

Natural gas futures rose by 19 percent, up $1.87 per
million British thermal units, to $11.67 on Sunday night. They
briefly topped out at $12.00.

The only U.S. offshore oil port, the Louisiana Offshore Oil
Port LLC, halted all offshore and onshore operations by noon
CDT (1700 GMT) Sunday so its workers could evacuate.

The LOOP halted tanker offloading on Saturday and was
supplying refiners with oil stored onshore. Onshore operations
were stopped Sunday to give workers time to evacuate, said
spokeswoman Barb Hestermann.

"We're all wondering 'What am I going to have to come home
to?"' Hestermann said.

The LOOP daily receives an average 1 million barrels of
foreign oil from tankers.

Seven southeast Louisiana refineries, with a combined daily
refining capacity of 1.449 million barrels, were shut or
shutting down on Sunday. All were to be closed by Sunday night.

The most vulnerable refineries appear to be the three
located in Plaquemines and St. Bernard Parishes east of New

St. Bernard Parish is home to Chalmette Refining LLC's
190,000 barrel per day (bpd) Chalmette, Louisiana, plant and
Murphy Oil Corp.'s 120,000 bpd Meraux, Louisiana, refinery.

ConocoPhillips has a 247,000 bpd refinery located in Belle
Chasse in Plaquemines Parish.

Katrina is expected to come ashore in those two parishes.

A storm surge of 18 to 20 feet is expected in St. Bernard
Parish, said Jim Connor at the parish Emergency Operations
Center. Residents there are bracing for flooding up to the
rooftops of houses.

"We're preparing for something we've never seen before,"
Connor said.

Some refiners were telling workers to be prepared to return
to work on Tuesday or "as soon as practical."

Initially, refiners will survey their plants for damage
from the storm before attempting a restart.

Offshore producers follow a similar procedure.