August 30, 2005 in Nation/World

Gasoline, energy prices another storm casualty

Brad Foss Associated Press

hurricane Katrina

Oil reserve release may not ease prices

» WASHINGTON – President Bush is likely to approve the release of some oil in the Strategic Petroleum Reserve to try to prevent a sharp increase in fuel prices in the aftermath of Hurricane Katrina. But analysts say the tactic won’t work.

» After Hurricane Ivan destroyed 12 pipelines and seven oil-drilling platforms in the Gulf of Mexico last year, Bush approved the release of about 5.4 million barrels of oil from the reserve, a system of salt caverns in Texas and Louisiana that store an emergency supply of about 700 million barrels of oil.

» Katrina, which hit the Gulf Coast on Monday morning, is expected to cause much more harm to the 4,000 offshore oil and gas wells in the gulf.

» Even worse, Katrina is expected to damage some of the refineries in Louisiana and Mississippi, something Ivan didn’t do.

» Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation, predicted that some refineries will be flooded and out of production for weeks after the storm. That will make it hard to refine the oil the president may release from the reserve.

» ”We’re going to lose a substantial amount of refining long after the storm disappears,” Goldstein said.

» He said releasing oil from the Strategic Petroleum Reserve would have a positive psychological impact on consumers but wouldn’t have much effect on energy prices.

USA Today

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 a spike in the retail cost of gasoline.

The powerful hurricane roiled the industry at a time when producers worldwide already are 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 already has slowed the U.S. economy’s growth rate, though domestic fuel consumption still is rising.

The Bush administration said it will consider lending oil from the nation’s emergency stockpile to refiners that request it, and the president of the Organization of Petroleum Exporting Countries 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 damage to the Gulf Coast’s platforms, pipelines, refineries and electric grid.

“We’re losing a lot of crude oil and also a lot of natural gas,” said Lawrence J. Goldstein, president of the New York-based nonprofit 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 over 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 will send aircraft to check the status of its assets “as soon as it is safe.”

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 – it may take more time to assess damage, depending on how rough the seas are – prices could run up once again, analysts said.

Based on conversations with oil and gas companies operating in the gulf, Goldstein said it appears that Katrina will 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-in, 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 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 also is produced in the region.

Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25 cents to 35 cents a gallon on Monday following reports that more than 8 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm.

One analyst said pump prices nationwide likely will average more than $2.75 a gallon by week’s end, up from about $2.60 a gallon 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. He emphasized that the market reaction is a reflection of supply tightness, not shortages.

Natural gas futures briefly surged more than 20 percent after the temporary closure of a critical distribution hub and on concerns that power outages and flooding could prevent processors from running their plants for days, if not weeks.

Even before Katrina arrived, the U.S. Energy Department had warned consumers who rely on natural gas to heat their homes to expect sharply higher bills this winter.

On Monday, Puget Sound Energy of Bellevue, Wash., filed a request with state regulators to pass through higher natural gas costs to its customers, and analysts said more similar requests are likely around the country.

“The damage to the electric power grid is the most important source of damage to consider in evaluation of the impact of Hurricane Katrina,” said energy analyst Dan Lippe of Petral Worldwide in Houston.

Lippe said the operations of oil refiners, natural gas processors and chemical manufacturers could be disrupted for as little as a few days or as long as a few weeks.

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