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Storm Surge for Gas May Top $3 a Gallon

Posted on: Friday, 9 September 2005, 18:00 CDT

Hurricane Katrina disrupted Gulf Coast petroleum output and rattled energy markets on Monday, sending oil and natural gas prices soaring and setting the stage for $3-a-gallon gasoline nationwide and on the First Coast. By the end of the day, more than 700 offshore platforms and rigs had been evacuated, two rigs had drifted away and authorities in Alabama were forced to close a bridge over the Mobile River after it was struck by a runaway platform. Oil futures briefly climbed above $70 a barrel for the first time. The powerful hurricane roiled the industry at a time when producers worldwide were already struggling to keep up with strong demand, and it threatened to constrain the supply of home heating fuels this winter. The rise in energy prices has already slowed the U.S. economy's growth rate, though domestic fuel consumption is still rising. The Bush administration said it would consider lending oil from the nation's emergency stockpile to refiners that request it -- Citgo Petroleum Corp. asked for 250,000-500,000 barrels to ensure its Lake Charles, La., refinery does not run out -- and the president of OPEC said he will propose a production increase of 500,000 barrels a day at the cartel's meeting next month. Analysts nervously awaited details on the extent of the damage to the region's platforms, pipelines, refineries and electric grid

. "We're losing a lot of crude oil and a lot of natural gas,'' said Lawrence Goldstein, president of the New York-based non-profit Petroleum Industry Research Foundation. Goldstein estimated that total refinery production of gasoline, heating oil, diesel and other fuels could fall by as much as 20 million barrels in the next 60 days. Royal Dutch Shell PLC said on its Web site that two of its drilling rigs equipped with tracking devices had "drifted off location.'' The company said it would send aircraft to check the status of its assets "as soon as it is safe to do so.'' Also Monday, several refiners said damage at their plants appeared to be minimal and oil prices eased from the day's high of $70.80 a barrel. But if a bleaker picture emerges in the days ahead -- it may take more time to assess damage, depending on how rough the seas are -- prices could run-up once again, analysts said. The average price of a gallon of regular unleaded gasoline in Jacksonville was $2.60 Monday, up from $2.28 a month ago and from $1.82 a year ago, according to AAA's Daily Fuel Gauge Report. Analysts said the cost could rise 20 to 30 cents a gallon in the next week, approaching $3 a gallon. "Katrina went plowing into the heartland of our Gulf oil-producing region, damaging oil wells, pipelines, terminals and refineries," said Randy Bly, director of community relations for AAA Auto Club South in Tampa, which covers Jacksonville. "This is terrible news as far as gasoline prices go." Another analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end -- up from $2.61, according to Energy Department data released Monday. "Unfortunately, I don't think $3 a gallon is a hyperbolic number in some markets anymore,'' said analyst Tom Kloza of Wall, N.J.-based Oil Price Information Service. Demand also raises prices and Labor Day is the coming week. AAA expects 34.5 million people to travel more than 50 miles from home for the three-day holiday, 28.8 million of them by car. Based on conversations with oil and gas companies operating in the gulf, Goldstein said it appeared that Katrina would not curb output for as long as last year's Hurricane Ivan, even though the short-term impact was significant. The federal Minerals Management Service said Monday that 92 percent of the region's oil output was shut down, with more than 3 million barrels of production lost since Friday. The agency said 83 percent of natural gas output was shut-in, resulting in a loss of 15.5 billion cubic feet of lost production since Friday. The Gulf of Mexico normally produces 2 million barrels of crude oil a day, or about 35 percent of the United States' domestic output, according to government and industry data. About 10 billion cubic feet a day of natural gas is produced in the region. Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25-35 cents a gallon on Monday after reports that more than 8 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm. The Associated Press and Times-Union reporter Jessie-Lynne Kerr contributed to this report.

Source: Florida Times Union

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