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Energy Prices Ease Slightly, but Markets Remain on Edge

Posted on: Wednesday, 7 September 2005, 12:00 CDT

Sep. 7--Energy prices backed off their post-Hurricane Katrina highs as more Gulf Coast production and refining operations returned to service.

Oil, natural gas and gasoline futures prices all fell Tuesday, while gasoline wholesalers reported price declines beginning over the weekend.

So far that has not led to lower prices at the pump. Some parts of the country continue to see shortages, particularly in the Southeast, said Ben Brockwell, director of pricing with the Oil Pricing Information Service.

"There's a sense of relief, but we're not out of the woods yet," he said. "There's still no margin of error in the market. It remains on edge."

While the information released so far about refiners and the offshore oil and gas business shows many facilities will be back on line in the near future, restoring a small number of key operations will be longer term projects.

In Houston the average gasoline price was $2.971 on Tuesday, up one-tenth of a penny from Monday, according to AAA.

The average retail price for unleaded gasoline nationwide climbed by 45.9 cents last week to $3.069, a record.

Gasoline futures fell by 12.87 cents to $2.055 a gallon Tuesday, but that's still up about 7 percent since Aug. 26, before Katrina struck.

Oil was also down, with October delivery off $1.61 to settle at $65.96 a barrel. Natural gas fell 3.4 cents to $11.657 per million British thermal units

The news from the Gulf of Mexico's energy industry is still incomplete, but a clearer picture is beginning to form. And it's not a good one.

Four deepwater platforms that account for about 10 percent of the Gulf's pre-storm oil output are seriously damaged, and could take from three to six months to repair, according to Assistant Secretary for Land and Minerals Management Rebecca Watson.

As many as 37 production platforms were destroyed in the Gulf's shallow waters and 15 were seriously damaged, she said. These units only represent about 1 percent of the region's energy output, however.

One of the largest of those damaged is Royal Dutch Shell's Mars platform, which received significant damage to its topside superstructure.

While the company won't confirm production numbers for the facility, some estimates attribute about 10 percent of the total energy output in the Gulf's federal waters to Mars.

Companies continued to restart platforms, such as Anadarko Petroleum, which said its only Gulf production unit, Marco Polo, was back up to its full output. BP said Tuesday its deepwater Holstein facility is now producing approximately 70,000 barrels of oil or its equivalent in gas.

The Louisiana Offshore Oil Port was expected to be back to 75 percent of its capacity on Tuesday, according to Coast Guard officials.

The status of the 33,000 miles of undersea pipelines running from the platforms to shore remains sketchy.

Enbridge Energy said its 30-inch pipeline in the Mississippi Canyon area offshore is damaged and will be down "for a while," according to a spokeswoman. The processing facility near Venice, La., has been damaged seriously and may take weeks to reopen.

Other subsea pipeline operators like El Paso, Enterprise Products Partners and Williams Partners report successful pressure tests on some of their lines, but have not been able to inspect all of their facilities.

The oil refining picture has improved somewhat since last week, with at least three of the eight refineries knocked out by the storm expected to restart this week.

But major damage at facilities like Chevron Corp.'s 325,000-barrel a day refinery at Pascagoula, Miss., and ConocoPhillips' 247,000 barrel day plant at Belle Chasse, La. may keep as much as 5 percent of the country's refining capacity offline for weeks.

Wholesale gasoline prices have dropped from a peak late last week. In Houston wholesale prices dropped by more than 20 cents per gallon, depending on the refiner, said Jay Hurt of the Hurt Co.,a fuel distributor.

"There was a little bit of hysteria immediately after the storm that may have added more to prices," Hurt said.

Prices at Houston wholesale fuel terminals started to drop Saturday, with Valero dropping 21 cents and Citgo's down 35 cents. Despite these declines, prices remain well above pre-storm levels.

Pump prices will likely back off their current highs, observers say, but they won't drop far unless supplies increase or demand drops.

On the supply side as many as 20 new shipments of gasoline are en route to U.S. ports in the next week, Brockwell said. The shipments represent barely half of U.S. gasoline daily consumption, but it could help take the edge off supply worries.

And as far as demand, Brockwell said one sign of a drop came from officials in Maryland, Virginia and Washington, D.C., who reported a decrease in gasoline sales tax revenues in recent week.

"I think American consumers may be paying attention this time, they may finally realize we're not going to get cheap oil again," he said.

MARS PLATFORM

Location: 130 miles southeast of New Orleans

Operator: Shell

Discovered: 1989

First production: 1996

Water depth: 2,940 feet

Expected total production: 500 million barrels of oil equivalent

Daily oil output before damage: 147,000 barrels

The amount represents approximately

17 percent of shut-in Gulf of Mexico production

sqbullet10 percent of the Gulf of Mexico's normal daily production

crude or its energy equivalent in natural gas

Sources: Shell, U.S. Minerals Management Service, Reuters

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SC, RD, SHEL, APC, BP, COP, VLO,

Source: Houston Chronicle

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